Feds chase more student loan defaults

The number of people who aren't paying back their student loans is on the rise, and the government is increasingly threatening to sue them for the money.

The amount of loan defaults that the Education Department has referred to Justice Department lawyers for possible legal action has risen dramatically since before the recession and nearly doubled from 2009 to last year: There were 918 referrals in 2006; that number rose to 2,596 in 2009, and then to 5,393 last year, Education Department figures show.

Suing to collect the debt is a "last resort step," says Jane Glickman, Education Department spokeswoman.

If the government does sue, it can go after wages, bank accounts, put liens on people's property and hold parents responsible for their children's debt if they co-signed the education loans.

"The most important thing to remember is we want the loans repaid," Glickman says. "Borrowers can work on repayment plans ranging from deferments to extended grace periods. We try to do everything possible to come up with a repayment plan before taking the step of seeking a lawsuit."

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The amount of student loans repaid after being referred to the Justice Department for possible litigation. Collections (in millions):

* Money received so far; Source: Education Department

The most recent Education Department figures show that of about 3.37 million student loan borrowers, 238,852 were in default from the 2006 federal fiscal year through the 2008 fiscal year. The default rate for 2008 was about 7% compared with 5.2% in 2006.

Rising college costs, in addition to the economy, are helping drive up the rates as people have taken out more loans to cover tuition and fees, Glickman says.

College seniors who graduated in 2009 carried an average of $24,000 in student loan debt, up 6% from the previous year, the Project on Student Debt, a research and policy group, reported in October.

Since January 2010, the Education Department has stopped going after defaulted loans of less than $45,000 through the Justice Department. That doesn't mean people who aren't making payments are off the hook. Bad loans of less than that are handled by private law firms on a contract basis, Glickman says.

Although the department doesn't provide information on how many suits are filed, it does say it has received repayments totaling $11.3 million so far since 2006. Numbers from the U.S. attorney's offices in several states, which pursue the suits, gives a sense of how lawsuits are increasing:

In the past four years, the U.S. attorney's office for the Northern District of Alabama sued more than 60 people, says Cindy Kelly, chief of the civil division. In the four years prior to 2007, 14 cases were filed.

The U.S. attorney's office for the Middle District of Florida saw the number of suits pursued grow to 980 in 2010 from 376 in 2008, spokesman William Daniels says.

Roney also reports for The Montgomery (Ala.) Advertiser. Contributing: Mary Beth Marklein.

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