The debate about the costs of defaulted federal student loans has taken a very troubling turn. Confusing budget numbers seem to show that the government actually recovers more than it pays out on federal student loans. Jason Delisle of New America wrote an excellent article on this issue in January 2011. He shows how the default recovery rates in the budget documents are not what they appear to be.
We will save the debate over the numbers for another day. What is particularly shocking is how the for-profit industry has used these numbers to rationalize the disproportionately high default rates in their sector. (Data released in February 2011 show a federal cohort default rate of 25% at for-profit colleges, nearly double the national average). Many in the for-profit industry have turned this argument around by claiming “no harm, no foul.” So what, they say, if the default rates are so high. It doesn’t matter, they say, because taxpayers will be made whole and the government even makes a profit.
These people need to get out of their comfortable offices. For those who have been in default or ever spoken with a student loan borrower in default, the cost is clear and apparent and devastating. We see this every day through our clients and others who contact us. We see clients in their 80’s and 90’s facing Social Security offsets for loans taken out 30 or 40 years ago. This will go on as long as they live because there is no statute of limitations for federal student loan collections. We see the harm caused to our countless younger clients who attended rip-off schools and are now trying to go back to legitimate schools and better their lives. They can’t go back to school because they can’t get new federal loans or grants because of the prior defaults. Borrowers who are recently out of homelessness, working in their first jobs for a while, face loss of their earned income tax credits or even portions of their already meager wages. They get collection calls and letters. Many give up trying to resolve the problems because of the abuse and harassment they get from collection agencies.
How can anyone ever call this profitable, acceptable or a win-win situation? Student loan defaults have a huge cost in human terms and in terms of lost future productivity. While we very much agree with Jason Delisle’s call to the White House Office of Management and Budget and the Department of Education to clear up the confusing budget numbers, in the meantime, those making opportunistic arguments that defaults have no cost should take a look around and talk to borrowers in default. These borrowers’ voices and experiences are too often lost in the shameless spin that masks as honest debate these days.