A new report from the U.S. Department of Education’s Office of Inspector General (OIG) examined what steps the department had taken from fiscal years 2011 through 2014 to improve student debt and loan repayment rates. Turns out, nothing much:
The Department does not have a comprehensive plan or strategy to prevent student loan defaults and thus cannot ensure that default prevention efforts conducted by various offices are coordinated and consistent. (p. 13)
[The Department] did not explicitly establish default prevention activities in the 2009 TIVAS [Title IV Additional Servicers] contracts or adequately monitor calls to delinquent borrowers. (p. 18)
That’s bad enough. What worse, students will rack up more debt and default under ED’s “management,” and taxpayers will be stuck paying the tab. The OIG found that the three-year cohort default rate is now around 1 in 7, and:
The Department’s outstanding student loan debt portfolio more than doubled in the last 6 years, from $516 billion at the end of FY 2007 to $1.04 trillion at the end of FY 2013. (p. 1)
Here are some other troubling statistics:
… nearly 40 million borrowers had outstanding student loans totaling about $1.1 trillion that were either held or guaranteed by the Department. (p. 4)
… graduating seniors with student loans held an average of $29,384 in combined private [not federally subsidized] and Federal student loan debt in award year 2011-2012, 27 percent more than the average combined debt of $23,118 in award year 2007-2008. (p. 4)
Total private and Federal student loan debt is currently the second largest form of debt in the nation, behind only home mortgages. (p. 4)
Borrowers are defaulting on their Federal student loans at the highest rate since 1995. (p. 4)
We’ll recall that back in 2010 Education Secretary Arne Duncan was viliifying heavily subsidized private lenders and insisting that federal “direct lending” through his department was a better plan. Nearly two years later, student debt continued to balloon. We also know that the “cohort” default rate used by ED under-estimates the actual student loan default rate significantly—a fact the OIG admits in a footnote (p. 5, n. 8). Also buried in another footnote is the fact that ED will never recover up to 13 cents of every defaulted loan dollar (p. 5, n. 9).
Given that outstanding loan debt now tops $1.04 trillion, that works out to as much as $135 billion plus unspecified collection costs annually.
The Department now has 30 days to come up with a corrective action plan.
The feds nationalized student loans under the guise of eliminating the middle man to keep college costs down (it hasn’t). Just days before the House approved the federal lending takeover, Duncan took to the press, preaching:
We’re not asking the taxpayers for one single dollar. We’re simply making the choice to stop subsidizing banks, to invest our young people back here.
Technically, Duncan was right: we’re not paying one single dollar. We’re paying tens of billions of them.
If Duncan truly were interested, as he said, in investing in students, he’d be pushing for tax-free personal savings accounts, across-the-board tax cuts for individuals and businesses to fund scholarships, and performance investments from private financial institutions and philanthropic organizations in students directly rather than more lump-sum government appropriations to bureaucratic postsecondary institutions where sufficient funding never quite manages to trickle down to students.
[An earlier more detailed version of this post appeared previously on The Independent Institute Beacon Blog here].