College seniors graduating with student loans in 2010 owed an average of $25,250–a 5% increase from the prior year.
The mortgage debt crisis has barely been resolved but there’s already talk of the next big financial crisis in the U.S.: student debt.
Student borrowing topped the $100 billion threshold for the first time in 2010, and total outstanding loans exceeded $1 trillion for the first time in 2011. In fact, student loan debt exceeds credit card debt in the U.S. which stands at about $798 billion. It’s a fascinating figure considering the unemployment rate is still flirting with 9% in the U.S. thus hurting the earning power for recent graduates.
Making the student debt issue an even greater concern is that it doesn’t just affect young borrowers–it’s affecting their parents too. According to a report out yesterday from the National Association of Consumer Bankruptcy Attorneys borrowers are taking out huge sums of money through federal and private loan programs and in many cases their parents, who are nearing retirement, are also on the hook for repayments.
“Evidence is mounting that student loans could be the next trouble spot for lenders,” Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs says in the report.
Parent borrowing is up 75% since the 2005-2006 academic year with an average of $34,000 in student loans and that figure rises to about $50,000 over a standard 10-year repayment period, the NACBA report says. Plus, an estimated 17 percent of parents whose children graduated in 2010 took out loans, up from 5.6 % in 1992-1993.
College seniors who graduated with student loans in 2010 owed an average of $25,250 a 5% increase from the prior year, according tothe Project on Student Debt at the Institute for College Access & Success (TICAS).
The problem: a college education, while valuable, doesn’t guarantee a high-paying job that will help pay off that student debt easily. In fact, it can hurt the economy the report explains: Even in the best of economic times when jobs are plentiful, young people with considerable debt burdens end up delaying life-cycle events such as buying a car, purchasing a home, getting married and having children.
The report surbeyed 860 bankruptcy lawyers and 81% said that potential clients with student debt have increased significantly or somewhat in the last three to four years. And 25% of them said student loan client cases have jumped by 50% in the same period.
“Bankruptcy attorneys from across the country who report that what they are seeing at the ground level feels too much like what they saw before the foreclosure crisis crashed onto the national scene: more and consumers seeking their help with unmanageable student loan debt, and with no relief available,” the report says.
Making matters worse for deeply troubled student borrowers? Unlike say, credit card debt, student debt is not forgivable in bankruptcy. That’s been the case since the mid 1970s when Congress prohibited it. In fact, 95% of bankruptcy lawyers said that few student loan borrowers have any chance of obtaining a discharge as result of undue hardship.
The bankruptcy lawyers group is urging that that be changed so that student debt can be discharged.From NACBA:
NACBA calls on Congress to act immediately to eliminate the nondischargeability of private student loans. There simply is no reason to allow private student loans to be treated differently from other types of unsecured credit. In fact, exempting these loans from discharge is likely to cause even more harm for borrowers since there are no interest rate limit or limits on fees charged for private student loans. Furthermore, there are limited repayment options for those borrowers facing financial hardship.
There is currently legislation to address student debt issues including a House bill dubbed “Private Student Loan Bankruptcy Fairness Act” and a Senate bill “Fairness for Struggling Students Act.”
Says William E. Brewer, Jr., president, National Association of Consumer Bankruptcy Attorneys, “Take it from those of us on the frontline of economic distress in America: This could very well be the next debt bomb for the U.S. economy.”