A report released last week by the Federal Reserve Bank of New York showed that the total balance of student loans in the U.S. has reached $870 billion, while 27 percent of student loan borrowers are at least 30 days behind on their payments. Since 1985, the cost of college tuition and fees has sextupled.
Average college debt now exceeds $25,000, spurring fear of a “student debt bubble.” And a recent survey of bankruptcy lawyers seems to confirm those fears, as a vast majority of them have seen an increase in clients seeking relief from student loan debt:
According to a recent survey by the National Association of Consumer Bankruptcy Attorneys, more than 80 percent of bankruptcy lawyers have seen a substantial increase in the number of clients seeking relief from student loans in recent years.
In most cases, those clients could not meet the federal hardship standards that are necessary to discharge a student loan through bankruptcy proceedings. Instead, many of these parents or guardians who co-signed the student loans face the prospect of losing their life savings, cars or homes to collection agencies for aggressive private lenders.
William Brewer, head of NACBA, has said, “This could very well be the next debt bomb for the U.S. economy” (though it won’t reach the level of the mortgage bubble, due to the sheer size of the U.S. mortgage market).
Student loans are one of the few debts that are not easily discharged in bankruptcy, and restrictions on discharging loans from for-profit colleges have coincided with that industry’s rapid growth (and the student debt that comes along with it). The Roosevelt Institute’s Mike Konczal has suggested undoing some of the restrictions on discharging student loans that were instituted in the 80s and 90s, since “it is hard to see these as anything other than a giant subsidy to private agents.”
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