School of Hard Knocks: Federal Student Loan Servicing and the Looming Federal Student Loan Crisis

Nearly forty-three million Americans collectively owe $1.5 trillion in outstanding student loan debt. Of that, approximately ten percent of student loan debt is over ninety days delinquent or in default, while the actual delinquency rate is estimated to likely be double this amount due to the fact that half of all federal student loans are not in the repayment cycle. This equates to one in four student loan borrowers who are struggling to repay or already in default. In total, student loan borrowers are at least ninety days behind on repayment of $160 billion worth of federal student loans. By way of comparison, the worst performing residential mortgage portfolio on which the federal government is ultimately responsible is the Federal Housing Administration single family loan program, and only two percent of those loans are ninety days or more delinquent. To give these staggering numbers perspective, there are nearly as many people receiving retirement benefits under the United States Social Security program as those who owe federal student loans, and the volume of outstanding student loan debt outweighs the total volume of credit card and automobile debt combined. Many characterize the federal student loan program as a system on the verge of collapse due to the soaring rates of default and predictions that defaults will only continue to rise.