Defaults soaring on student loans

A new analysis of federal student loans reveals the number of people severely behind on repaying their debt has soared in the last year, painting a bleak picture of one of the largest government programs.

The Consumer Federation of America released a study Tuesday that found that millions of people had not made a payment on $137 billion in federal student loans for at least nine months in 2016, a 14 percent increase in defaults from a year earlier. The consumer watchdog used the latest data from the Education Department, which manages $1.3 trillion in federal student debt owed by 42.4 million Americans.

What’s striking about the findings is that Americans now more than ever have a variety of repayment options to avoid default. The Obama administration expanded programs that cap monthly payments to a percentage of earnings, but even though millions of people are enrolled in those income-driven plans, there is still a disconnect.

“Despite a rising stock market and falling unemployment, student loan borrowers are still struggling,” said Rohit Chopra, a senior fellow at the Consumer Federation of America.

Chopra lays some of the blame on colleges doing a poor job of graduating students who take on debt, leaving them with limited prospects of earning enough to repay the loans. He said policymakers should consider a proposal to force schools to share the risk of borrowing by reimbursing the government for a percentage of defaults.