WRAL Investigates

More defaulting on student loans

Posted May 12, 2010
Updated May 13, 2010

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— When the economy took a downturn in 2008, more people headed back to school. With that, the number of people who are behind in payments on student loans is steadily on the rise again.

According to the U.S. Education Department, the national student loan default rate for fiscal year 2008 increased to 7.2 percent, compared with 6.7 percent in 2007 and 5.2 percent in 2006.

WRAL News found cases from nearly 30 years ago where the government is still trying to collect.

NC Sales Tax More people defaulting on student loans

A doctor who borrowed $28,000 in the 1980s now owes $132,000 in interest and penalties, according to one federal court case. Another borrower started with $69,000 in loans in the 1990s, and the debt is now $98,000.

Wake Technical Community College student Jason Rhodes is one of the many students who are trying to manage that debt while he's still in school.

His degree in bakery and pastry arts marks his second go-round in college. He first attended East Carolina University and studied pre-med. He then changed his major to art and got a job teaching art at a private school, but he was laid off.

“(I) decided to take the opportunity to go back to school,” said Rhodes, who estimates that he’ll owe $15,000 to $20,000 by the time he leaves Wake Tech.

Rhodes said he has a work-study job, is paying on his loans every month and is avoiding the urge to borrow more.

Credit counselor Rebekah O'Connell says even bankruptcy isn't an escape.

“The debt doesn’t really go away,” she said. “If you don’t (pay), you’re at their mercy. They will keep your tax refund. They will garnish your wages.”

For that reason, financial aid applicants at Wake Tech are encouraged to take a financial literacy class online.

North Carolina is in better shape than many states across the country and has one of the lowest default rates in the country.

21 Comments

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  • ncguy May 13, 2010

    Yes you signed the dotted line- pay the money you owe!

    This is what got this country in the troubole it is now- borrow money -default and the Gov bails you out. Or have you listened to the radio ads for legal help- that one really bugs me- pay back ten cents on the dollar it says.

    If you borrow money you need to pay it back!

  • john283594 May 13, 2010

    One of the biggest scams out there is people who abuse the student loan program by signing up for courses and then dropping them and keeping the refund. Basically using student aid as a low interest loan.

    You HAVE to pay it back, that is the way the system works.

  • shadowwolf May 13, 2010

    It would probably be a good idea to stop going to the colleges that support extremely exhorbitant pay scales for the practicing professors. UNC claims salaries of up to $500,000.00! The president of the United States doesn't make but $400,000.00. What is wrong with this picture? Yet, the colleges keep raising the tuitions each year in order to support these salaries.

  • JustOneGodLessThanU May 13, 2010

    Why should you not have to pay for something that you've already received?

    Drop your TV cable bill or your cell phone subscription or eat peanut butter & jelly...but pay the debt YOU OWE. I did. Most people do. It's YOUR turn. Step up to your responsibilities.

  • Krzyzewskiectomy May 13, 2010

    My wife has a masters degree from Duke, and when she lost her job it took 14 months for her to find another one. Sallie Mae is being cut out by the Feds for a reason, you can not get economic or hardship deferments on many of their products and people who can not find work quickly get in way over their heads with ridiculous interest payments. Sallie Mae WILL NOT work with you, but Direct loans from the government will. I know people personally who went from 6 figures to losing everything, do you think they wanted that to happen?

  • asdfg May 13, 2010

    I got student loans back in '97-'02 and the terms were always spelled out clearly. The interest rates were reasonable (around 6% or lower). The standard repayment term was 10 years, but they would extend that for people who graduated with higher balances. They also offer other repayment plans such as income contingent which is based on your income. If you have a hard time getting a job after graduating or if you lose your job or have other temporary hardships, you can apply for a deferral or forbearance. Borrowers are responsible for understanding the terms before they borrow the money. Also, the government sets the terms for these loans, not the lender. If you can't make your payments, call them, if you qualify for a deferment or forebearance they have to give it you. If you aren't making much money, use the income contingent plan. They even have one that will forgive your remaining balance after you have made your payments for a certain number of years. No excuses.

  • mccormickt33 May 13, 2010

    These people don't want to default on their loans but they can't find a job. I graduated in May 2008 andn I haven't been able to find a job I am either over qualified or not qualified. I am about to finish my masters degree and I can't help but wonder if I will ever be able to find a job so that I can pay my loans back.

  • Bendal1 May 13, 2010

    This is similar to the "strategic defaults" you hear about, where people walk away from their mortgages when the house is worth than the money they still owe. Graduates are coming out of college with tens of thousands of dollars of student loan debt and finding there isn't a job for them. They end up either working lower paying jobs or not at all, and decide to just not pay back the debt.

    Since the loan is basically unsecured, though, the government WILL garnish your wages and tax returns to get that money back. Perhaps choosing more carefully what your major will be would be a good idea.

  • CestLaVie May 13, 2010

    annev: I looked at the website you show. Many hard-luck stories, BUT like gumby says, legal documents were signed and the money is owed. These can be just as hard, if not worse, to pay back as credit card charges. The economy seems to be always against us, if for no other reason than inflation.

    So, I ask you: if I found a way to pay back my loan over years, why should any of these people NOT pay back their loans?? These loaning entities need their funds paid back so they can further lend to others; that's how it works. They aren't out to GET YOU or MAKE YOU default.

    It's called personal responsibility......a missing link for many these days.

  • CestLaVie May 13, 2010

    "They will keep your tax refund. They will garnishee your wages."

    "...found cases from nearly 30 years ago where the government is still trying to collect."

    Looks like the good doc is getting away with something here. Wonder what the ethical/moral reason is for not paying back such a high amount of loan & interest & penalties?

    Imagine....me with my little BA degree making comparatively peanuts compared to the doc's income....I paid my student loan back; the doc didn't. Makes you wonder, huh?

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