Will There Be a Student Loan Bubble Burst Soon?

Student Loan Debt Still Rising – Could it be the next crisis?

Pay it or die with it, you choose.

A report concerning student loans debt was released by the National Association of Consumer Bankruptcy Attorneys (NACBA) in early February 2012.  More than 80 percent of the attorneys had seen an increase in the number of potential clients with student loan debt. Almost 25 percent of the attorneys said the number of potential student loan clients increased 50 to 100 percent; 39 percent of attorneys reported increases of 25 to 50 percent.

Student debt is increasing

Student debt is rising due to increased cost of college education, reduction in financial aid, depressed economic conditions, reduced parents’ incomes, fewer part time jobs for students, and finding jobs after graduation have become more difficult.  Some parents are getting into debt to pay for college because they don’t have the money saved or are co-signing for these loans.

According to the Institute for College Access & Success’ Project on Student Debt, the average student loan debt for a college graduate in 2010 was $25,500 which was a five percent increase from the prior year.  Having a sizeable debt isn’t a great way to start out looking for your first job. It is understandable why some feel overwhelmed with student debt and feel there is no way out.

Other debts can be discharged through bankruptcy but student loan debt cannot.  Some bankruptcy attorneys want laws to change so that student loans can be discharged through bankruptcy.  The Department of Education has authority to can take money from federal and state tax returns from those that have delinquent student loans.  They can even take Social Security retirement benefits and Social Security disability benefits.

Next crisis?

Even more troubling are the similarities to mortgage finance problems seen right before the foreclosure crisis torpedoed the nation’s housing market and contributed to a global financial crisis. “Just as the housing bubble created a mortgage debt overhang that absorbs the incomes of consumers and renders them unable to engage in consumer spending that sustains the economy, so too are student loans beginning to have an effect, which will be a drag on the economy for the foreseeable future,” said John Rao, an attorney at the National Consumer Law Center and vice president of NACBA.

Is student loan debt heading in the same direction as the mortgage crisis in 2009?  Student loan has surpassed credit card debit and totals $1 trillion.  Currently there is no way out of a student loan except death.

Credit Expert Witness, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Civil Penalty, Credit Monitoring, Credit Report, Credit Score, Debt, Financial, Money & Identity

This post was written by John Ulzheimer