Philosophy
by
Victor Luckerson
February 8th, 2013
Time
As more college graduates default on their student loans, some schools are taking drastic measures to ensure repayment. According to a recent Bloomberg report, Yale, the University of Pennsylvania and George Washington University have taken defaulters to court in recent years to try to force them to pay up.
The schools are targeting recipients of Perkins loans, which are subsidized loans usually awarded to lower-income students with exceptional financial need. Unlike the larger federal Stafford loan program, in which the Department of Education acts as the lender, Perkins loans are administered directly by participating institutions with a mixture of funds from the federal government and the schools themselves. Almost 500,000 of the loan awards are doled out annually.
According to court records analyzed by Bloomberg, the University of Pennsylvania filed at least 12 lawsuits to recoup Perkins loan money last year. Yale is suing a former student for about $6,500 in outstanding loans, while George Washington University is suing a student for $7,000 in Perkins loans and $15,000 in unpaid tuition costs. Though there’s no comprehensive data that shows how often schools are taking graduates to court, defaults grew by 20% from 2006 to 2011, up to $964 million. Overall federal student loan defaults have also been on the rise for several years.
Such amounts might seem like small potatoes in the grand scheme, hardly worthy of litigation. However, Mark Kantrowtiz, publisher of FinAid.org, says recent stresses put on the Perkins loan system may be forcing more schools to take legal action. The loan fund is supposed to be self-replenishing, with debtors paying the money they owe back into the pool of loan money. In the past, the federal government offered cash infusions of about $65 million per year to ensure the program’s solvency, but that funding dried up after the 2008 fiscal year. “The colleges are getting a little bit more aggressive in pursuing these loans,” Kantrowitz says.
Typically, an expensive lawsuit is a last resort for schools. Before taking such measures, they’re likely to send letters outlining the amount of the loan and repayment options, report the default to credit agencies, attempt to garnish a debtor’s wages, and enlist the aid of a collection agency. If a graduate is sued, they’ll also owe expensive collection fees, which are higher for Perkins loans than for other types of federal student loans. The federal government has already taken a tough stance on defaulters in recent years, with debt collectors earning $1 billion in commissions for tracking down federal student loan defaulters in 2011, according to Bloomberg.
President Obama has proposed expanding the Perkins loan program from its current $1 billion in funding to $8 billion by getting more schools involved in the program and awarding federal money to schools that are able to stem rapidly rising tuition costs. However, the interest rates on the loans would increase from 5% to 6.8%, and they wouldn’t necessarily be restricted to students with the same financial needs. The new Perkins loan model would be tailored more to reducing student reliance on private loans than providing a low-interest vehicle for low-income families.
For those in default, experts recommend trying to reach out to the school to work out a repayment plan instead of trying to dodge a debt. Increasingly, neither schools nor the government are willing to look the other way when there’s money owed. “Schools are required to take efforts to collect on these loans,” says Justin Draeger, president of the National Association of Student Financial Aid Administrators. “When you borrow money from taxpayers, you have to pay it back.”
- Some Teeth Are Showing By The Government For The For-profit Colleges
"Will your degree get you a good job? US proposes test for for-profit colleges." The proposed 'gainful employment' regulations would take away a program's eligibility for federal student aid if too many of its students defaulted on student...
- Itt Under Government Observation
"Inspecting a Student Loan Spigot" by Cretchen Morgenson January 18th, 2014 The New York Times A few days after Christmas, ITT Educational Services, one of the nation’s largest operators of for-profit technical schools, reported some unwelcome news....
- More On The Student Loan Program
"Student loan reform: What will it mean for students?" President Obama signed the Health Care and Education Reconciliation Act Tuesday, whose student loan reform will mean big savings for the US government, but not much change for students until 2014....
- Same Coat But A Different Color--student Loans
No wonder higher education loans are drifting from private to government sources--they don't want the risks of defaults; "Federal government takeover of college loan pool in works" by Mara Rose Williams October 31st, 2009 The Kansas City Star College...
- Higher Education--costly
The Boston Globe this morning reported that Massachusetts's schools of higher education have "...received nearly 15 percent more financial aid applications over the first half of 2008, compared to the same period last year...." This no doubt is indicative...
Philosophy
Perry Mason to the rescue?...Perkins loan recipients are defaulting
"Schools Suing Graduates for Defaulting on Loans"
by
Victor Luckerson
February 8th, 2013
Time
As more college graduates default on their student loans, some schools are taking drastic measures to ensure repayment. According to a recent Bloomberg report, Yale, the University of Pennsylvania and George Washington University have taken defaulters to court in recent years to try to force them to pay up.
The schools are targeting recipients of Perkins loans, which are subsidized loans usually awarded to lower-income students with exceptional financial need. Unlike the larger federal Stafford loan program, in which the Department of Education acts as the lender, Perkins loans are administered directly by participating institutions with a mixture of funds from the federal government and the schools themselves. Almost 500,000 of the loan awards are doled out annually.
According to court records analyzed by Bloomberg, the University of Pennsylvania filed at least 12 lawsuits to recoup Perkins loan money last year. Yale is suing a former student for about $6,500 in outstanding loans, while George Washington University is suing a student for $7,000 in Perkins loans and $15,000 in unpaid tuition costs. Though there’s no comprehensive data that shows how often schools are taking graduates to court, defaults grew by 20% from 2006 to 2011, up to $964 million. Overall federal student loan defaults have also been on the rise for several years.
Such amounts might seem like small potatoes in the grand scheme, hardly worthy of litigation. However, Mark Kantrowtiz, publisher of FinAid.org, says recent stresses put on the Perkins loan system may be forcing more schools to take legal action. The loan fund is supposed to be self-replenishing, with debtors paying the money they owe back into the pool of loan money. In the past, the federal government offered cash infusions of about $65 million per year to ensure the program’s solvency, but that funding dried up after the 2008 fiscal year. “The colleges are getting a little bit more aggressive in pursuing these loans,” Kantrowitz says.
Typically, an expensive lawsuit is a last resort for schools. Before taking such measures, they’re likely to send letters outlining the amount of the loan and repayment options, report the default to credit agencies, attempt to garnish a debtor’s wages, and enlist the aid of a collection agency. If a graduate is sued, they’ll also owe expensive collection fees, which are higher for Perkins loans than for other types of federal student loans. The federal government has already taken a tough stance on defaulters in recent years, with debt collectors earning $1 billion in commissions for tracking down federal student loan defaulters in 2011, according to Bloomberg.
President Obama has proposed expanding the Perkins loan program from its current $1 billion in funding to $8 billion by getting more schools involved in the program and awarding federal money to schools that are able to stem rapidly rising tuition costs. However, the interest rates on the loans would increase from 5% to 6.8%, and they wouldn’t necessarily be restricted to students with the same financial needs. The new Perkins loan model would be tailored more to reducing student reliance on private loans than providing a low-interest vehicle for low-income families.
For those in default, experts recommend trying to reach out to the school to work out a repayment plan instead of trying to dodge a debt. Increasingly, neither schools nor the government are willing to look the other way when there’s money owed. “Schools are required to take efforts to collect on these loans,” says Justin Draeger, president of the National Association of Student Financial Aid Administrators. “When you borrow money from taxpayers, you have to pay it back.”
- Some Teeth Are Showing By The Government For The For-profit Colleges
"Will your degree get you a good job? US proposes test for for-profit colleges." The proposed 'gainful employment' regulations would take away a program's eligibility for federal student aid if too many of its students defaulted on student...
- Itt Under Government Observation
"Inspecting a Student Loan Spigot" by Cretchen Morgenson January 18th, 2014 The New York Times A few days after Christmas, ITT Educational Services, one of the nation’s largest operators of for-profit technical schools, reported some unwelcome news....
- More On The Student Loan Program
"Student loan reform: What will it mean for students?" President Obama signed the Health Care and Education Reconciliation Act Tuesday, whose student loan reform will mean big savings for the US government, but not much change for students until 2014....
- Same Coat But A Different Color--student Loans
No wonder higher education loans are drifting from private to government sources--they don't want the risks of defaults; "Federal government takeover of college loan pool in works" by Mara Rose Williams October 31st, 2009 The Kansas City Star College...
- Higher Education--costly
The Boston Globe this morning reported that Massachusetts's schools of higher education have "...received nearly 15 percent more financial aid applications over the first half of 2008, compared to the same period last year...." This no doubt is indicative...