Borrowing for college has been an institution for decades. But for recent graduates, paying off these loans has been problematic as unemployment has plagued the U.S. economy. In 2011, student loan debt outpaced credit card debt, with Americans owing $829.78 billion in educational loans compared to $826.5 billion in revolving debt.
Recently, a survey conducted by the National Association of Consumer Bankruptcy Attorneys suggested that more borrowers were seeking bankruptcy protection because of student loan debt. Of 860 attorneys surveyed, 80 percent saw an increase in clients who had student loan debt. Additionally, 39 percent reported that they saw potential student loan client cases increase by 50 percent in the last three years, while 23 percent saw such cases double during that time.
The problem may stem from the inability of young graduates to find jobs. The group cites 2005 graduates as an example of a systemic problem. Of those graduates, 25 percent had delinquent loans and 15 percent had already defaulted.
Unfortunately, the bankruptcy code does not offer much relief to those saddled with student loan debt. Student loans fall under the status of non-dischargeable debt, which cannot be discharged through bankruptcy absent a showing of "undue hardship."
And while it's unknown if Congress will make changes to bankruptcy laws to one day include student loan debt, to try and combat some of the hardships of student loans, President Barak Obama introduced his "Pay as You Earn" plan last fall, where federal student loan payments would be capped at 10 percent of the borrower's discretionary income. Also, any remaining debt would be forgiven after 20 years.
Source: Colorlines.com "Bankruptcy Attorneys Report Major Jump in Student Loan Debtors", February 8, 2012
