by James A. Bacon

As student loan debt passed the $1.3 trillion mark, 43% of the roughly 22 million Americans with student loans were not making their loan payments, according to new numbers published by the U.S. Department of Education. About 3.6 million borrowers were in default on $56 billion in student debt as of Jan. 1, meaning they had gone at least a year without making a payment. Meanwhile, another three million owing $110 billion were in “forbearance,” meaning they had received permission to temporarily halt payments, reports the Wall Street Journal.

Advocacy groups fault loan service companies for not doing enough to reach troubled borrowers. But Navient Corp., which services student loans and offers payment plans tied to income, says it attempts to reach each borrower on average 230 to 300 times through letters, emails, calls and text messages in the year leading up to default. Ninety percent of those borrowers never respond. A large percentage of borrowers have fallen off the radar screen — they are untrackable.

Meanwhile, worried about the federal government’s astronomical bad debt exposure — borrowers are behind on more than $200 billion overall — the government is garnishing wages and tax refunds. Needless to say, falling behind on loans also hurts credit ratings, making it more difficult or more expensive to take on other forms of debt.

The WSJ quotes Carlo Salerno, an economist who studies higher education and consults for the private student-lending industry:

The government imposes virtually no credit checks on borrowers, requires no cosigners and doesn’t screen people for their preparedness for college-level course work. “On what planet does a financing vehicle with those kinds of terms and performance metrics make sense,” he said.

Bacon’s bottom line:

All told some $200 billion in student loans are at risk of not being repaid. Much, if not most, of that sum has accumulated in recent years as the result of liberalized federal lending policies, creating a massive potential liability for taxpayers. The country now faces a hideous choice — either hound millions of Americans for repayment of their loans, driving many of them out of the workforce or into the underground economy, and ruining their credit ratings in the bargain, or institute a debt-forgiveness jubilee that rewards irresponsible behavior and punishes taxpayers.

The reckless expansion of student lending over the past several years is one of the most disastrous social policies in U.S. history, harming many of the lower-income Americans the program was designed to help. There has been nothing to compare to this creation of a new class of indebted servitude… well, nothing since the home-ownership mania of the 1990s and 2000s that lured lower-income Americans into houses they could not afford and obliterated their net worth in the real estate crash.

Americans think Wall Street is stealing them blind. While the big financial institutions did benefit enormously from the federal bailout during the last recession — a bailout thousands of Main Street businesses never got — at least they repaid their loans! The biggest blight on lower-income Americans over the past 10 to 20 years hasn’t been the Chinese, or the Mexicans, or Wall Street, or greedy millionaires and billionaires, it has been calamitous social policy that has immiserated those it intended to help.

When will we ever learn?

Update: Probably never. Headline from today’s Washington Post… “Obama administration pushes banks to make home loans to people with weaker credit.” The federal government doesn’t just tax us to advance its social-justice goals, it commandeers the credit system of the entire country, creating a new form of systemic risk.