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Government recoups defaulted student loan debt

Nov 26, 2012 | | Comments Comments Off

Dear Liz: I read your response to the person questioning the rationale behind taxpayer-supported federal student loans. Your response was well written, but do you have any information about how much money is owed to the government for student loans and what percentage of all the loans are actually paid back in full? You mentioned that the government can garnish wages and Social Security checks and seize tax refunds, but does the government follow through and hold these people accountable? Does the government have personnel to do this or is this just a threat?

Answer: Millions of unhappy student loan borrowers can assure you the government’s considerable powers to collect defaulted student loans are much more than a threat. In addition to its own collection activities, the U.S. Department of Education also hires a number of private collection agencies to help recoup what’s owed.

As a result, the government collects more than 100 cents on every defaulted dollar once accumulated interest and penalties are included, according to the Education Department’s most recent report. On a net present value basis — when future collections are discounted back to today’s dollars — the government recovers about 80% of the defaulted debt.

Decades ago, it was possible to skip out on federal student loan debt without serious consequences. Public outrage over that fact led to much stronger collection efforts. That has resulted in the federal government recovering about $10 billion in defaulted student loan debt every year, said Mark Kantrowitz, publisher of the FinAid.org and FastWeb financial aid sites.

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