Colleges Suing Poor Students Over Loan Defaults

Getting a college education doesn’t come cheap. For many students, the skyrocketing cost of tuition, fees, housing, food and books has left them little recourse but to seek federal loans.

But as the number of defaults on student loans earmarked for the poor reaches record levels, schools such as Yale, the University of Pennsylvania and George Washington University have resorted to suing their former students, Bloomberg reports. Moreover, the default levels are also affecting the prospects of current students facing extreme financial hardships who need the federal Perkins loans to cover the cost of their education.

Bloomberg:

Yale, Penn and George Washington University have all sued former students over nonpayment, court records show. While no one tracks the number of lawsuits, students defaulted on $964 million in Perkins loans in the year ended June 2011, 20 percent more than five years earlier, government data show. Unlike most student loans — distributed and collected by the federal government — Perkins loans are administered by colleges, which use repayment money to lend to other poor students.

“If you borrow to go to school, it may not be just the government that ends up coming after you if you can’t pay,” said Deanne Loonin, an attorney with the National Consumer Law Center, a nonprofit advocacy group in Boston. “We offer credit very easily.” If the student doesn’t benefit financially from the education, “the government or the school comes after them very aggressively.”

…The increase in the amount of defaulted loans among poor students comes as President Barack Obama says he wants to expand access to college for working-class families and increase funding for the Perkins program. Under his proposal, the pot for Perkins loans would increase to $8.5 billion from about $1 billion. The Education Department would service the loans instead of colleges.

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— Posted by Tracy Bloom.