In its March 13th edition, Consumer Bankruptcy News reports that student loan debt now exceeds credit card debt in the United States with more than $1 trillion (yes, that's with a "t") in student loans now outstanding. The article states that America faces the very real possibility of another major economic threat on a par with the devastating home mortgage crisis, according to the new survey and report from the National Association of Consumer Bankruptcy Attorneys ("NACBA").
"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," said NACBA president William E. Brewer Jr. "The amount of student borrowing crossed the $100 billion threshold for the first time in 2010 and total outstanding loans exceeded $1 trillion for the first time last year. The reason: Students and workers seeking retraining are borrowing extraordinary amounts of money through federal and private loan programs to help cover the rising cost of college and training. In many cases, parents responsible for the student loans are in or near retirement years and facing repayment demands."
It's a concern shared by lenders.
FICO's most recent quarterly survey of bank risk professionals found growing concern for the stability of the student loan market and deepening fears. In FICO's survey, 67 percent of respondents expected delinquencies on these loans to rise. That is 19 percentage points higher than last quarter. Only 8 percent of respondents expected a decline in delinquencies.
"Evidence is mounting that student loans could be the next trouble spot for lenders," said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO labs. "A significant rise in defaults on student loans would impact lenders as well as taxpayers, who could be facing big losses due to these defaults. Our survey results underscore the ongoing challenges that millions of American households face as they try to cope with their debt during these uncertain times."
Concern that the student loan debt burden is becoming too great was also reflected in the anecdotal experiences of 860 bankruptcy attorneys from across the country who responded to NACBA's survey. Their survey found that -
* More than four out of five bankruptcy attorneys (81 percent) say that potential clients with student loan debt have increased "significantly" or "somewhat" in the last three to four years. Overall, about half (48 percent) of bankruptcy attorneys reported significant increases in such potential clients.
* Nearly two out of five of bankruptcy attorneys (39 percent) have seen potential student loan client cases jump 25 to 50 percent in the last three to four years. An additional quarter ((23 percent) of bankruptcy attorneys have seen such cases jump by 50 percent to more that 100 percent.
* Most bankruptcy attorneys (95 percent) report that few student loan debtors are seen as having any chance of obtaining a discharge as a result of undue hardship.
Student loans are necessary to make sure that every person who wants to earn a college degree has a way to pay for it. However, the student's financial need should not become a lifetime of stress and financial hardship, NACBA says and recommends policy reforms "intended to help build a better and more equitable system for student loan borrowers who encounter financial difficulties."
This is Part 1 of a 2 Part article.
