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Universities suing graduates over unpaid student loans

Americans owe roughly $1 trillion on student loans, and as college graduates encounter difficulties with high monthly payments, the universities they attended are suing to get the borrowed money back. CNBC's Scott Cohn reports.

Americans owe roughly $1 trillion in student loans. Part of the unpaid debt is on federal Perkins loans offered to students on the basis of need. Now several leading universities are suing their former students to get some of that money back.

Yale, the University of Pennsylvania, and George Washington University all have sued graduates over failure to pay, according to court records. Penn filed two dozen cases last year alone, a 35 percent jump over the previous year.

College of the Ozarks, a private, four-year Missouri college, is so concerned about the mounting debt of college graduates in the United States that it no longer will accept students who take out loans, Reuters reports.

None of the schools would comment to TODAY, but George Washington University said it turns to litigation as a last resort.

That’s not any comfort to Aaron Graff, who graduated from the school in 2010. Last year, George Washington sued him for failing to repay a $4,000 federal Perkins loan for low-income students.

Graff said he already works two jobs to make payments of $600 a month on $60,000 worth of other student loans.

"I maybe have about 100 dollars spending money a week – and spending money means gas, means food. I don’t go out to eat,” he said. "I guess I could get another job where I'm working 17, 18 hours a day."

Unlike most forms of debt, student loans cannot be forgiven, even by declaring bankruptcy, and that has contributed to a rising delinquency program. For the first time, overdue student loans have surpassed late credit card payments, prompting many schools to turn to the court system to reclaim their money.

However, Justin Draeger, president of the National Association of Student Financial Aid Administrators, said, “By and large, I think that most institutions are trying to work with their students.”

Graff said he hopes the problem opens a dialogue among educators and lenders.

“Let’s start to talk about why is college so expensive,” he said. “What is it that we're getting for our money when we put our money into these institutions?”

This story was first reported on Bloomberg.com.


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