The Dirty Little Secret Behind Student Loan Default Rates

The Dirty Little Secret Behind Student Loan Default Rates

These days, rare is the student who manages to graduate from college without a healthy amount of loans following him or her into the workplace, or down into Mom and Dad’s basement, given the reality of the Obama economy. Borrowing money from the government for educational expenses has become something of an American rite of passage, as ubiquitous to the college campus as mindless protests and Mac notebooks.

But according to Allan Collinge, the man behind and recent guest on The Young Wealth Show (), the US Department of Education actually has a vested interest in encouraging an ever higher default rate.

Say what? Our dear old Uncle Sam actually WANTS us to borrow so much money

for school that we ultimately default on the loans? That’s exactly what Collinge claims. Now we’re not going to tell you that we’ve looked under every rock and in each crevice to verify the veracity of the following number, but the man says the government actually collects far more money when a student defaults on his loan, recovering $1.22 for every dollar paid out in default claims.

How is this even possible? To quote directly from an article Collinge wrote for Forbes.com:

“The primary reason for this is that unlike all other types of debt, bankruptcy protections, statutes of limitations, and other standard consumer protections have been removes from federal student loans, and draconian collection powers have been given to collect on hugely inflated, defaulted student loan debt.”

If Collinge is right with his number that one out of every three student loan ends in default, it makes us a bit suspicious about why Congress and the Department of Education continues to raise the lending limit rather than freeze or lower it. If student borrowing is a money maker, rather than a selfless gesture on the part of a benevolent government, it might be time for college students to stop and think a minute before signing on the dotted line yet again.

While it’s true no one ever held a gun to anyone’s head (we don’t think) to encourage educational borrowing, surely no one would think it too much to ask that we be in possession of the actual default rate. Right?

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Flickr / Sterling College

The Young Wealth Team

The Young Wealth Team

The Young Wealth Team

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