Posts Tagged "Department of Education"

College grad drowning

A Lot of Student Debt May Never Be Paid Off

student loan chartFor half to two-thirds of the college loans made over the past decade, the former students owe more than they initially borrowed.

This is the result of a federal program that bases monthly student loan payments on the borrowers’ income if they aren’t earning enough to afford the standard payments. But the monthly payments in these much-needed Income Driven Repayment (IDR) plans are often less than is required to fully service the principal and interest on the loans. So instead of getting ahead, borrowers are perennially behind and never chip away at the balances.

People who go into the repayment plans are “trying to bail out a boat with a bucket that has a hole in it,” said Betsy Mayotte, president of The Institute of Student Loan Advisors, a non-profit that gives free information and advice to people needing help with their loans.

Marshall Steinbaum, an economist with the University of Utah, estimates that at least half of all student loans might never be repaid, based on his back-of-the-envelope calculation. That share is also growing, he said in an email, because more and more former students are enrolling in IDR programs.

The inability to pay “is baked into the system,” Steinbaum wrote in The Appeal. …Learn More

Student loan debt written on a chalk board

College Debt Boosts Disability Requests

During the steel and coal busts of the 1980s, applications for federal disability benefits rose in areas where these industries had laid off workers. Now there’s a 21st century reason to apply: student loans.

College debt is extremely difficult to discharge in the bankruptcy courts. But the U.S. Department of Education in 2013 opened a new avenue for potentially eliminating federal student loan debt. Former college students whose disabilities are severe enough to qualify them for disability benefits can then apply to the Department of Education for loan forgiveness.

Since 2015, the typical person approved for the program has eliminated $17,500 in college loans.

The prospect of discharging the onerous debt created a powerful financial incentive. After the program began, the probability that an individual with student loans would apply for disability with the U.S. Social Security Administration was much higher than for individuals with no loans, a new study found. The increase in applications was largely from people who had not earned any money the previous year and may have had few options for paying their debt.

The older workers who took out student loans – sometimes on behalf of their children – may be “aching to retire” anyway, the researchers said, and receiving disability and loan forgiveness would accomplish that. But the younger people who applied may simply have been motivated by a desire to discharge their college debts.

However, seeking disability benefits as a strategy for eliminating the debt didn’t work very well. …Learn More