For many Millennials, student loan debt is a harsh reality that we are left dealing with on a regular basis. For some, myself included, we took these loans out when we were in our early 20s, unaware of how this debt could affect our financial future. True, this is no excuse, we still voluntarily signed away our futures when we agreed to all the terms and conditions. However, many of us had no idea what to expect after college when the government came collecting.
Prior to 2010, most students went through local lenders to borrow the money for their college education. The process was done through the government’s Free Application for Federal Student Aid (FAFSA) site, but the government acted more like a middle man between local lenders and the borrower. For all borrowers who went through FAFSA, like myself, our loan debt was swallowed up by the federal government when Congress passed the “Health Care and Education Reconciliation Act of 2010,” giving the federal government the sole authority to issue and manage repayment for all loans issued after July 2010.
Though this did increase the funding available for students, it also put the repayment process in the hands of the federal government. According to data released last week by the Department of Education’s Office of Federal Student Aid, between October 1st and December 31st 2015, over $167 million in wages were garnished from borrowers who had defaulted on their loan payments. Since the government now retains control over student loans, it also has the ability to garnish wages from borrowers who default on their payments, just as they would if you failed to pay the appropriate amount of taxes.
To make matters even worse, more and more borrowers are having a hard time paying back their loans, making wage garnishment a very real possibility for many. According to figures released last August, about 5.1 million student loan borrowers were at least three months late on their payments or had defaulted on their loans. Worse still, 21.5 percent of all student loan borrowers were considered “severely delinquent” borrowers.
Though there are federal programs in place to help lessen the burden of student loan debt, borrowers are still struggling to make payments. Meanwhile, tuition across the country continues to rise leaving students with few financing options aside from federal student loans. As the student loan bubble continues to grow, many borrowers and economists are left anxiously anticipating its inevitable burst and the resulting fallout.