Texas reports High Student Loan Default rate

KFOX14 of ElPaso Texas is reporting that default rates in Texas have increased from 5.8 percent to 9.3 percent in the last 3 years. Texas currently has the 2nd highest default rate in the nation, with Arizona topping the list at 9.8 percent.

Students all over the country are finding themselves going into default a mere 6 months after graduating due to lack of jobs, in this country's floundering economy.

And they have no idea what is in store for them for the future. As one student put it, "if I am lucky I will be able to find a job within the next 6 months, but if I let these loans stay in default much longer, my future will be ruined.

And he is not alone. He will be joining special ranks of 2 generations of defaulters who are still struggling to pay off their loans, loans which grow at astronomical rates once they enter default status.

Unlike a car loan or a home loan, when a student loan defaults, the total amount of the loan is declared due and interest on that balance starts accruing. Penalties and collections fees can double that amount yet again. And by the time the student manages to pay it off, if they ever do, they can find that they have paid 5 to 8 times what they originally borrowed, and that only 10 percent of what they paid actually went to paying off the principal.

When a student in default makes a payment, the first of 3 parts of the amount due for that month is paid - the collection cost for that month. If any amount remains, that is applied to the interest for that month and then if anything remains from the payment, it is applied to the principal.

This means a 800 dollar a month payment can be eaten up by 700 dollars worth of Collections fees and interest fees, and then late fees, with only 50 dollars put on the principal.

In many cases, the students cannot make full payments and their lower payment is eaten up by the collection fees alone. This means the collections fee is added to the principal, and the debt grows, instead of decreasing.

Despite congressional knowledge that some private school systems have higher default rates, and for what ever reason these schools have default rates, very little has been done by the US congress to help students who are in default, other than offer an income based repayment plan. No caps on the amount of collections fees that can be charged, nor caps on interest, have ever been offered. Thus the students in default are exploited even more than regular students.

The original intention of the higher education act was to ensure America would have highly trained workers available when needed, and to help students get their higher educations at an affordable cost via low interest loans. Along the way, greedy financiers corrupted the system turning it into the most predatory of all lending practices in America. This means it has also became the most exploitative of young adults in America.

In one case, the US Congress knew of, and even stated that some students were victimized by predatory schools who sold them worthless educations and leaving the students with bills (loans) they could not pay. Congress knew these students were in, or about to go into default, yet has never offered any kind of relief to those students.

Now with another group of students about to enter into the highest default rate since the pre- 1990 days of Higher education, maybe the US congress will finally address how to help those with defaulted loans who are trying to make payments and pay off their debt, but cannot due to financial disaster, or in this case, the extremely bad economy that has unemployment rates closing on those during the great depression.