WASHINGTON There are more than 7 million borrowers in default on federal or private student loans, according to the Consumer Financial Protection Bureau.
In a blog posting Monday, the CFPB said it found that among those borrowers, about 6.5 million borrowers had defaulted on two federal loan programs as of June 30. The agency does not have regulatory jurisdiction over federally-backed loans but they make up more than 83% of the roughly $1.2 trillion loan market.
"While there's been a lot of discussion about changes to federal student loan interest rates on new loans, many of you have asked: what's happening with the trillion that's already been borrowed," said Rohit Chopra, the CFPB's student loan ombudsman, in the blog.
The CFPB pulled data from the Department of Education and found that of $486 billion in direct federal and Federal Family Education loans, about $30 billion and $59 billion are in default, respectively. Though those figures only represent 5% and 14% of each program, the amount of loans being deferred or in forbearance is far greater, showing potential stresses to the student loan market coming down the pike.
For direct federal loans, about 22%, or $123.9 billion, are in deferment or forbearance. Another $89.3 billion, or 21% of the current Federal Family Education loans, are in deferment or forbearance.
"Defaulting on a federal student loan has serious consequences," Chopra said. "Unlike other consumer credit, borrowers in default on a federal student loan might see their tax refund taken and their wages garnished without a court order."
However, about a third of federal direct loan borrowers in repayment, deferment or forbearance have chosen alternative repayment plans to lower their payments, Chopra said. Most of these repayment plans also did not require income documentation, which concerns the CFPB.
"Based on the average balances we estimate for borrowers in each plan, it's possible that many borrowers in plans not based on income might be better off with an income-based plan," Chopra said in the blog. "If borrowers were aware of and able to easily enroll in income-based plans through their servicer, many federal student loan defaults could have been avoided."
A week earlier, the CFPB's released its mid-year report on private student loans derived from complaints it received from Oct. 1 through March 31. The agency received about 2,000 complaints, most of which were with regard to processing issues and struggling borrowers who couldn't get modifications.