While millions defaulting on loans have chosen to ignore them — costing taxpayers millions of dollars — some borrowers can't pay because of financial trouble due to illness or other problems beyond their control, the newspaper said in a series on credit-reporting problems. The system doesn't distinguish between types of defaulters, and both are treated as financial deadbeats.
Low credit scores for those who don't pay — despite the reason — prevent them from buying cars, renting apartments and even getting jobs in some cases.
"The system is extremely unforgiving," said Deanne Loonin, a National Consumer Law Center attorney who directs the Student Loan Borrower Assistance Project for the Boston-based nonprofit agency. "We've chosen, as a public policy, very punitive collection. From a taxpayer-return point of view, it makes more sense to help them succeed."
The student-loan default rate keeps growing. More than 37 million borrowers owe more than $1 trillion in student loans — with the majority government loans — and more than 5 million people are in default, the newspaper reported.
The U.S. Department of Education tracks student loans for the first three years of repayment, and the most recent data show that 13.4 percent of borrowers who were to begin repayment in 2009 defaulted by the end of 2011, defined as not making payments for nine consecutive months.
The Dispatch analyzed a random sample of the nearly 16,000 lawsuits the U.S. government has filed against defaulted student-loan debtors since 2007. Of 394 cases, more than 73 percent were filed a decade after borrowers fell into default and nearly a third were filed 20 years after default.
Because of compounding interest and debt-collection fees, defendants owe a median debt of $8,100 — nearly twice what they borrowed. More than 40 percent owe double what they borrowed.
Terri Crothers of Gallipolis, in southern Ohio, paid on her student loans for nine years until she was hit by medical bills after a car crash. With collection fees and interest, the middle-school teacher now owes nearly double what she originally borrowed and pays $500 a month.
"I couldn't help that I got hurt," she said. "It's not right that I owe so much more than I borrowed, even after paying them off faithfully."
The federal government can garnish paychecks, seize income-tax returns and take Social Security benefits from borrowers who defaulted. There is no statute of limitations covering federal loans, and it's virtually impossible to get rid of the debt through bankruptcy, according to the newspaper.
The Education Department has said borrowers can get rid of default and its negative effect on credit scores through loan consolidation or on-time payments. But borrowers rarely escape federal student loans and the credit problems that result from not paying.
The Education Department responded to the newspaper's findings:
"We want to make sure we are doing everything we can to strike the right balance between helping borrowers who have hit hard times and honoring our responsibility to be good stewards of taxpayer dollars," an email statement said. "Federal student loans are not like other forms of private credit. The American taxpayer lends money to students without any credit or collateral requirements and provides numerous repayment options and benefits."
U.S. Sen. Sherrod Brown, a Democrat from Ohio, said the federal government and universities aren't doing enough to make college affordable or helping students avoid the student-loan trap.
"We say on one hand that you need to go to school, and then too many people are in a worse-off financial situation after they leave college," he said.
Kent State graduate Melissa Babe consolidated her $17,000 student-loan debt with her husband's $100,000 in loans, but he stopped making payments when they divorced. Babe, living in Irvine, Calif., now owes $290,000.
"I've spent many nights crying my eyes out, begging them to work with me, but the answer is always no," Babe said.