Three universities/colleges have filed lawsuits against student loan borrowers who fell into default. Those institutions aim to collect payments so they could continue to provide Perkins Loans grants to needy students today.
Three US colleges are determined to collect repayments for defaulted student loans they provided in the last couple of years. Yale University, the Pennsylvania State University, and the George Washington University have filed lawsuits against borrowers of student loans that fell into default. The total number of filed charges remains undetermined but some insiders assert it may reach hundreds.
The three colleges, incidentally among the wealthiest education institutions, are suing to forcefully collect repayments for unpaid Perkins Loans they have granted to poor college students. It is estimated that the overall amount of student loans default now reach around $1 billion.
Colleges generally depend on student loan repayments to fund new Perkins Loans. Thus, when graduates are not able to pay back their student loans, those institutions may not be able to award assistance to current students. Analysts worry that if such defaults remain unpaid, the Perkins Loans program may be affected and become hardly accessible to financially needy college students.
Growing student debt
From June 2010 to June 2011, graduates defaulted on about $964 million worth of student loans. That is 20% higher than the default amount in 2005. Average amount of student loan has doubled to $27,253 in 2012 from $17,233 in 2005. The higher debt amount per student can still be cited to the increase in volume of Perkins Loans defaults.
Following graduation in college, each student-borrower is given 9 months as grace period to repay their borrowed amount. After that period, the loan amount is set to incur a 5% annual interest rate. To begin with, such assistance is strictly given to students from low-income families, which have the least capacity to pay back.
By the time students graduate, they may have other debts that incur much higher interest rates. Since Perkins Loans come with lower rates, most borrowers decide to repay private loans first. High unemployment rate makes the problem worse.
As college education costs continue to rise, more students get forced to apply for student loans. This led to increased national education debt to its current level of $1 trillion. However, President Barack Obama still proposes to increase the Perkins Loan fund to $8.5 billion from $1 billion. White House is also proposing to put the provision of student loans from the management of institutions to the direct supervision of the Education Department.
Meanwhile, default or non-payment of student loans can still bring about disastrous impact to borrowers. Aside from the exponential growth of the loans, they may also suffer from the serious and negative impact of default to their credit history.
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