If you don't think the federal student loan program is in crisis, you haven't been paying attention. And speaking of people who aren't paying attention, the New York Times recently published an editorial entitled "What to Do About Student Loan Defaults," which demonstrates that the Times editorial board is totally clueless about the student loan crisis.
The Times began by saying that the student-loan default rate dropped a bit from last year. The Department of Education's most recent three-year cohort default rate (the percentage of people in a cohort who default within three years of beginning repayment) was 13.7 percent, which is down a percentage point from last year's rate.
The Times neglected to report that the Department of Education calculated a special rate for several schools that were in danger of being kicked out of the federal student aid program because of high default rates in order to bring their default rates down. Which schools received this special favor? The Department of Education won't say.
The Times also neglected to note that the student loan rates are probably going down because colleges with the highest default rates have hired default-management companies to help bring their default rates down. These firms contact former students who are in danger of default and urge them to apply for economic hardship deferments.
Former students who have economic hardship deferments are not obligated to make loan payments but they are not counted as loan defaulters. This keeps colleges' default rates down during DOE's three-year measurement period.
Of course the bad news for student-loan debtors who have economic hardship deferments is that interest continues to accrue on their loan balances. People who defer payments for several years because they are on economic hardship deferments will wind up owing a lot more than they borrowed.
In fact, we really don't know that the true student-loan default rate is. Millions of people have received economic hardship deferments and millions more have signed up for income-based repayment plans that obligate them to make monthly student-loan payments over 25 years. Almost all of these people are seeing their loan balances negatively amortize--in other words, the amount they owe is getting larger.
The Times knows that millions of student-loan borrowers are in trouble, but what is its solution? More education!
Yes, the Times said that "[t]he government needs to continue pressing both schools and loan servicing companies to educate students on affordable partial payment plans that can keep them out of default." And at the end of the editorial, the Times urges the government to "get out the news about affordable repayment plans that set payments according to borrowers' income, allowing them to eat and pay the rent without falling into default."
So basically what the Times is saying is this: People need to sign up for income-based repayment plans that will negatively amortize for most borrowers and obligate student-loan debtors to make monthly payments for 20 or 25 years!
Of course this is lunacy. And it is deeply discouraging that the New York Times, which bleats continually about income-inequality and the plight of the poor, offers such unimaginative and ineffective solutions to the student-loan crisis, which is destroying the economic future of millions of Americans, not to mention the integrity of America's colleges and universities.
What to do about student loan defaults. New York Times, October 2, 2014. Accessible at: http://www.nytimes.com/2014/10/03/opinion/what-to-do-about-student-loan-defaults.html?_r=0