Who’s to blame for the student loan debt crisis that has seen total loan balances surge to $1.3 trillion, more than total credit card debt, straining the pocketbooks of not only students but their families who have also taken on debt?

The Consumer Federation of America faults the loan servicers of direct federal loans, noting in a new analysis that “despite availability of income-driven repayment plans, we are still seeing a rise in defaults,” said Rohit Chopra, a senior fellow at the Consumer Federation.

(Related on ThinkAdvisor: CFPB Sues Navient, the Largest US Student Loan Servicer) A Consumer Federation analysis of new data released by the U.S. Department of Education found a 17% increase in 2016 in the number of Americans in default on federal direct loans serviced by companies hired by the federal government, equal to 3,000 defaults each day, or 1.1 million people for the year.

“We have an economy where the stock market is soaring and unemployment is falling but so many young people are entering the workforce struggling to meet their student loan payments,” said Chopra. ”Our broken system works well for the student loan industry, but is failing borrowers, taxpayers, and our economy.”

(Related on ThinkAdvisor: To Attract Students, Colleges Offering Loan Debt Insurance)

A new report from the Bipartisan Policy Center agrees that the student loan financing system is failing borrowers, taxpayers and the economy and that loan servicers are partly at fault, but it faults the availability of federal direct loans, which contributes to rising college costs, and “overborrowing” by students, supported by their colleges, who under the federal direct lending program now serve as the originators of federal student loans.

(Related on ThinkAdvisor: Rising Student Debt Among Seniors Threatens to Wreck Their Retirement)

The BPC report found that around 40 million Americans have at least one federal student loan outstanding, up from 28 million in 2007, and nearly 40% of recent undergraduate borrowers have made no progress repaying their loans. Twenty-one percent of federal student loan balances, or approximately $260 billion, is in deferment or forbearance, meaning their borrowers have suspended payment.

“The combination of rising debt levels and low repayment rates suggests that reliance on debt to finance higher education has reached unsustainable levels in the United States and could create long-term strains on the federal budget,” according to the BPC.

It faults federal loan programs and “soaring college prices,” for most of the increase in student loan debt, including income-driven repayment plans designed to help those struggling to pay down their debt.

“Soaring college prices are the most obvious factor behind rising student loan balances, but federal policy has exacerbated the problem by encouraging borrowing and easing repayment requirements,” according to the BPC report.

“Ironically, the increasing generosity of federal loan programs has likely played a role in the escalation of college prices (tuition and other student charges) in recent years.”

The BPC report argues that the growing availability of loans along with more flexible repayment options have increased students’ willingness to borrow for college, which, in turn “has likely” made it easier for institutions to raise their prices.

“In this way, policies designed to promote college affordability could be having the perverse effect of also making college more expensive,” the report notes.

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It cites a 2015 report from the Federal Reserve Bank of New York finding that for each $1 increase in the maximum for subsidized student loans, the sticker price at colleges rose 60 cents and a Cornell Higher Education Research Institute report showing that public colleges increased in-state tuition rates based on the availability of federal Pell Grants, subsidized loans, and state need-based grant aid.

“A series of well-intentioned but flawed federal policies aimed at increasing the availability and attractiveness of student loans has, in part, encouraged systemic overreliance on debt to finance higher education in the United States,” the report notes.

The BPC offers the following policy options to address the problem of rising student debt but makes no specific recommendations:

Change loan limits to reduce “overborrowing” and pressure colleges to reduce costs. For PLUS loans, used by graduate students and parents of undergraduates, that would mean instituting a borrowing cap.

Eliminate loans for remediation courses, which don’t receive college credit.

Overhaul the debt counseling system, which is currently online, to a platform that is user friendly with information that students and their families can understand, or eliminate the online module and shift counseling to the state or local level, though that could be expensive to administer.

Increase the accountability of colleges, which currently have little incentive to prevent or reduce overborrowing. For example, colleges could be charged a fee based on the portion of a borrower’s outstanding principal balance that hasn’t declined after a given number of years. Or institutions whose borrowers consistently can’t pay down their debt could lose access to federal loans and grants.

Shift the direct student loan program back to the private sector, which managed the program before the federal government took it over in 2010.

Overhaul the loan servicing system. Currently private contractors service direct student loans, but the Education Department is in the process of overhauling the system. The BPC report suggests that the new platform might have certain functions outsourced to subcontractors with expertise in that area and that servicers get rewarded for bringing delinquent accounts current.

“Opportunities exist to improve the efficiency and effectiveness of the student loan system in ways that would discourage unsustainable levels of borrowing and, in doing so, also reduce potential federal budget exposure,” according to the BPC.

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