Student loan debt is pushing an increasing number of young people and their parents toward bankruptcy, according to a survey released Tuesday by the National Association of Consumer Bankruptcy Attorneys (NACBA.)
The NACBA say they were one of the first groups to warn of the rising mortgage crisis and they're now forecasting a "Student Loan Debt Bomb."
"Take it from those of us on the frontline of economic distress in America," said William E. Brewer Jr., the group's president. "This could very well be the next debt bomb for the U.S. economy."
One example the group cites is the class of 2005 borrowers who began repayments the year they graduated, one analysis found 25 percent became delinquent at some point and 15 percent defaulted. The Chronicle of Education puts the default rate on government loans at 20 percent.
Students are not alone in borrowing at record rates, so too are their parents. Loans to parents for the college education of children have jumped 75 percent since the 2005-2006 academic year. Parents have an average of $34,000 in student loans and that figure rises to about $50,000 over a standard 10-year loan repayment period. An estimated 17 percent of parents whose children graduated in 2010 took out loans, up from 5.6 percent in 1992-1993.
College seniors who graduated with student loans in 2010 owed an average of $25,250, up five percent from the previous year. Borrowing has grown far more quickly for those in the 35-49 age group, with school debt burden increasing by a staggering 47 percent.
The NACBA survey of 860 bankruptcy attorneys nationwide 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-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 25-50 percent in the last three-four years. An additional quarter (23 percent) of bankruptcy attorneys have seen such cases jump by 50 percent to more than 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.
"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," said John Rao, attorney, National Consumer Law Center and vice president at NACBA."Piling up student loans in middle age is even more troublesome. And parents who take out loans for children or co-sign loans will find those loans more difficult to pay as they stop working and their incomes decline."
Last October President Obama introduced a plan called the "Pay As You Earn" plan that would cap federal student loan payments at 10 percent of the borrowers discretionary income. Any remaining debt would be forgiven after 20 years.