The New York Times recently ran a very sad, if extreme and unrepresentative, story of student loan debt. There's lots one can say about the article, but two points really jumped out at me.
First, it's a real problem that the Department of Education cannot refuse to lend on the basis of a borrower's unsustainable debt load. The DoE should be allowed to refuse to lend to overleveraged consumers, both as a consumer protection matter and as a protection of the public fisc. There's a problem begging for a bipartisan legislative fix.
Second, by my back of the envelope calculations, the DoE simply cannot collect most of the debt from Ms. Kelly. Let's assume that the only real source of recovery for the DoE is by garnishing Ms. Kelly's income. Her other assets are either legally off-limits to creditors or not valuable enough to go after. As far as I can tell, the maximum garnishment amount will not even cover the interest accruing on the loans. In other words, her loans will negatively amortize even with full-bore collection activity.
The article didn't report Ms. Kelly's income as a parochial school high school teacher. Let's guess that it's around $50,000 annually and that her annual disposable income is around $39,000. The most DoE can garnish is 15% of disposable income (basically post-tax). That would be $5,850/year. Thus, if Ms. Kelly's $410,000 in debt is accruing interest at much over 1.4% per year, it will continue to grow even while in collection absent voluntary payments. The interest will accrue faster than the garnishment will reduce the debt. If that isn't a sign that something has gone seriously wrong with a lender-borrower relationship, I don't know what is. (It also makes me wonder if there is some sort of unconscionability argument possible here.)