A survey recently was completed by the National Association of Consumer Bankruptcy Attorneys and 81% of all bankruptcy attorneys have reported that over the last few years individuals filing bankruptcy also have a problem with student loan debt. As the cost of education continues to rise, so do the loans that go along with expensive schools. Lately, many financial experts and bankruptcy attorneys are predicting the next debt bomb or financial bubble will be student loans. At the end of 2011, student loans in the US had surpassed a grand total of one trillion dollars. This is a lot of money and with a down economy and everyone’s wondering where the money will come from.
It’s common for a bankruptcy attorney to get phone calls regarding filing bankruptcy and have the conversation about student loans and the ability to discharge them with the bankruptcy filing. What is interesting is student loan debt also surpassed credit card debt this year. With no way to get out of this debt, many parents along with adult children might be facing an extreme financial crisis. According to the report by the NACBA published on February 7, it stated that America is facing a large possibility of another major economic crisis equal to or worse than the home mortgage meltdown.
Included in the report was 40% of practicing bankruptcy attorneys have seen a jump of 25 to 50% of individuals filing bankruptcy also having student loan debt problems. It was also reported that a bankruptcy attorney stated that it’s next to impossible to obtain a bankruptcy discharge due to undue hardship. Most of the bankruptcy attorneys poled also stated that the loan discharge in a bankruptcy filing has become a big problem for young adults being able to get the fresh start from filing bankruptcy.
The long-term effect of student loan defaults will eventually ripple through the economy but not as fast as the mortgage defaults did. Most politicians are failing to acknowledge a problem with the student loan debt as a crisis begins to mount.