WASHINGTON–For “millions of U.S. parents, a crushing bill” related to student loans made to their children are coming due, and many of the parents lack the means to repay the loans, according to a new report.
The Wall Street Journal said its analysis of loans made through an Education Dept. program called “Parent Plus,” which has outstanding loans to more than three-million people, has led to “hundreds of thousands” of borrowers in delinquency and default.
“The problem is the government asks almost nothing about its borrowers’ incomes, existing debts, savings, credit scores or ability to repay,” the Wall Street Journal said. “Then it extends loans that are nearly impossible to extinguish in bankruptcy if borrowers fall on hard times.”
According to the data, September 2015, more than 330,000 people, or 11% of borrowers, had gone at least a year without making a payment on a Parent Plus loan, according to the Government Accountability Office, the Journal reported. That exceeds the default rate on U.S. mortgages at the peak of the housing crisis. More recent Education Department data show another 180,000 of the loans were at least a month delinquent as of May 2016, the Journal added.
“This credit is being extended on terms that specifically, willfully ignore their ability to repay,” Toby Merrill of Harvard Law School’s Legal Services Center, told the Wall Street Journal. “You can’t avoid that we’re targeting high-cost, high-dollar-amount loans to people who we know can’t afford to repay them.”
Overall, the number of Americans with federal student loans, including through programs for undergraduates, parents and graduate students, grew by 14 million to 42 million in the decade through last year, the Journal’s analysis shows. Overall student debt, most of it issued by the federal government, more than doubled to $1.3 trillion over that period.
According to Equifax data examined by the Journal, nearly four in 10 student loans—the vast majority of them federal ones—went to borrowers with credit scores below the subprime threshold of 620, indicating they were at the highest risk of defaulting. That figure excludes borrowers, such as many 18-year-old freshmen, who lacked scores because of shallow credit histories. By comparison, subprime mortgages peaked at nearly 20% of all mortgage originations in 2006.
The Journal’s analysis found roughly eight million Americans owing $137 billion are at least 360 days’ delinquent on federal student loans, nearly the number of homeowners who lost their homes because of the housing crisis. More than three million others owing $88 billion have fallen at least a month behind or have been granted temporary reprieves on payments because of financial distress.