Federal Direct Student Loan Program
"[1] It is the largest single source of federal financial aid for students and their parents pursuing post-secondary education and for many it is the first financial obligation they incur, leaving them with debt to be paid over a period of time that can be a decade or more as the average student takes 19.4 years.
A common concern associated with the program is the effect on the economy and repercussions for students that must repay these loans.
President George H. W. Bush authorized a pilot version of the Direct Loan program, by signing into law the 1992 Reauthorization of the Higher Education Act of 1965.
[4] The Higher Education Act was passed to give greater college access to women and minorities.
The switch to 100% Direct Lending effective July 1, 2010 was enacted by the Health Care and Education Reconciliation Act of 2010.
[17] Default and delinquency are increasingly common and are a large risk the government bears when giving out low-interest rate loans.
[2] The current default rate for the 1.56 trillion total outstanding dollars of debt among 44.7 million borrowers is 11.4%.
Over the average length of repayment which is 19 years, 250,000 students default on their loans each quarter while 1.5 trillion outstanding dollars are still supposed to be paid.
The growing principal balance results in higher interest payments and a greater overall cost of the loan.
[19] Pew Charitable Trusts research highlights the increasing number of student loan borrowers who encounter repayment problems or interruptions.
As previously mentioned, default consequences are severe and can include damaged credit, ineligibility for future student loans, garnishment of wages, high collection fees, loss of federal income tax refunds or Social Security and prohibition from other federal assistance programs.
[21] The study predicted that students failing to repay those loans would be a huge cost to the government, which we now know is true.
The estimate was that in the 1990s the defaulted student loans would cost the government at least two to three billion dollars each year.
Senator Richard Blumenthal urged, "We must reduce the student loan interest rate back to 3.4 percent immediately, and then even lower, and develop ways for past students to reduce and erase the $1 trillion in existing debt.
The failure of Congress to act now threatens our all too slow and fragile economic recovery and job creation.
"[25] These questions warrant consideration in the future conversations about the Federal Student Loan Program.
Candidates Bernie Sanders and Elizabeth Warren both offered programs for loan forgiveness.
The government is issuing cheap loans that are widely available and more than ever, students are attending expensive schools and are less worried about their ability to repay the debt.
This is exacerbated by the fact that federal financial aids provides less support for students going to community college.
