More than one-in-three student borrowers who have already defaulted on their student loans did so without even putting up an attempt into making a payment.
A record 11% of the 44 million of the former college students with their outstanding loan debts now sitting in default — that is far beyond the 8.6% peak in the mortgage defaults at the height of the housing crisis that had caused the Great Recession — as per the new Student Loan Report. Nearly half of all those in default, around 48.6%, said in the survey that they never even obtained a college degree, while another 33.8% have not even made a single payment on their debt.
The majority of those who were in default have more than one student loan outstanding with 11.2%, saying that they have missed four or more debt payments.
The majority of these respondents have said that they have defaulted because of their inability to find a good-paying job – 30.85%, lost their job 22.62% or lived in communities with high living expense 28.52%. Just about 39% of these defaulters have said that they had full-time jobs.
“The most common problems stem from either not working or getting laid off. Furthermore, a large group said their living expenses were too high, leading them to miss student loan payments. These all point to income problems—whether it’s too low or non-existent,” the report also said.
Student loan debt is now largely backed by the federal government and carries a lot of unique terms if compared to the traditional credit cards or mortgage loans. It cannot, for instance, be discharged in the bankruptcy courts. Many are hoping that their creditors, whether private or federal, would simply forgive the debt with around 48% saying that they expect lenders to eat the loss.
However, that is unlikely to happen, according to the report.
“While this would be nice for those borrowers, student loan forgiveness is pretty difficult to qualify for,” the report said. “Most people have to make payments for an extended period of time under the public service loan forgiveness program or another program that have strict eligibility requirements.”
The majority of these borrowers are now taking responsibility for their financial situation. About 60% say that they are to blame for taking out these loans and failing to pay them back, while 73% of these people said that they have made plans to begin paying back their debts. Still, many of these defaulters do not see themselves ever fully paying off their loans. One-in-four of these respondents in the 500-person survey saw themselves as likely to escape the debt; a staggering 21.6% meanwhile said that it was “very unlikely” they would ever pay it off.
Part of this problem stems from the huge ignorance that many of these borrowers have about their debt. It takes a total of 9 months of consecutive non-payments to attain a defaulter’s status, but only 13% of these respondents were aware of the fact. Of the remaining 87%, 30% believed they had 12 months to make these payments before entering into default and suffering a hit to their credit scores.