Student loan crisis getting worse (Need for bailout coming?)

You didn't think it was possible, did you? This CNBC article details how the snowball keeps picking up steam as it rolls downhill, threatening to crush the entire student loan program:

Student-loan defaults surged in the first three months of 2013, while efforts to collect bad loans are faltering, according to credit analysts and government audits. It is the latest twist in a college debt crisis that is hanging over recent graduates and dragging on the broader economy.
Credit-rating firm Equifax said $3.5 billion in government and private student loans went bad in the first three months of 2013, the most since the company began keeping track. The U.S. Department of Education said 6.8 million federal student loan borrowers are now in default, representing $85 billion in debt. And the department's systems for collecting the bad loans are struggling to keep up.
The Department's Office of Inspector General found in December that more than $1.1 billion in defaulted student loans were stuck in a sort of computer limbo.
"The Department is not pursuing collection remedies and borrowers are unable to take steps to remove their loans from default status," wrote Assistant Inspector General for Audit Patrick Howard in the December 13 report, which blames a system installed in 2011 by Xerox that is supposed to transfer defaulted loan accounts from servicing companies to private collection agencies. Those collection firms have considerable power, including the ability to garnish up to 15 percent of a borrower's wages. But none of that can happen until the accounts are transferred.
A Xerox spokesman declined to comment, referring inquiries to the Department of Education.

From CNBC:

http://www.cnbc.com/id/100598257

The Department’s Office of Inspector General found in December that more than $1.1 billion in defaulted student loans were stuck in a sort of computer limbo.

“The Department is not pursuing collection remedies and borrowers are unable to take steps to remove their loans from default status,” wrote Assistant Inspector General for Audit Patrick Howard in the December 13 report, which blames a system installed in 2011 by Xerox that is supposed to transfer defaulted loan accounts from servicing companies to private collection agencies. Those collection firms have considerable power, including the ability to garnish up to 15 percent of a borrower’s wages. But none of that can happen until the accounts are transferred.

SNIP SNIP

He said some $600 million of the affected loans will be transferred “in the coming weeks.”

But government auditors say some damage is already done. The Inspector General’s office says the collection problem led to a “material weakness” in the department’s financial controls last fiscal year—an issue Education Secretary Arne Duncan has vowed to address.

You knew the game was over when the New York Times posted that story a couple of years ago about a twenty-something guy who was up to his ears in student debt and had no way of paying it off. The guy had recently finished law school and had no solid employment prospects, so he basically gave up and began working for cash in various odd jobs around New York City. He was pretty confident that he’d never pay a penny of the money back because he was, in his own words “judgement-proof” from a legal standpoint.

I will be SO ANGRY! I repaid ALL of my college loans on time, in full, and we paid for all three of our kids to go to college. Youngest just finished in 2011. His was the most expensive because he went to a private university in California, that doesn’t do Instate Tuition. It was very expensive. We didn’t buy a new car for ourselves from 1995 - 2011. We scrimped and saved and lived frugally.

I guess we should have gotten HUGE student loans for our kids!

And if the US gov decides to TAKE 40% of our money from the bank, we will wish we hadn’t been so frugal, we will wish we had spent ourselves into debt - like the fed gov did

It's not a question of "forgiveness." The subject of the article I mentioned wasn't hostile about it in any way -- and was actually pretty clear in accepting that he had made some terrible financial decisions.

It's simply a matter of reality hitting home. You can't squeeze blood from a stone, and you can't get someone to pay back $200,000 in student debt when they're earning $12/hour in their mid-20s.

My responsible son just paid his student loan off early. I am so proud of him. He’s been gainfully employed since he graduated from college going on three years now, in a job he was hired for even before he graduated, and has been promoted twice. And he has quite a sizable bank account. I just wish he would meet a nice, conservative Christian/Catholic girl and settle down. :)

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