Student debt is looming as a national problem that could have repercussions reminiscent of the mortgage crisis, says a report by the National Association of Consumer Bankruptcy Attorneys
Student debt is looming as a national problem that could have repercussions reminiscent of the mortgage crisis, says a report by the National Association of Consumer Bankruptcy Attorneys.
Total debt from student loans is about $1 trillion, about 14 times more than 15 years ago, and well above the estimated total credit card debt of $798 billion.
The study, released Tuesday and based on a nationwide survey of 860 bankruptcy lawyers, said bankruptcy attorneys nationwide are seeing "what feels too much like what they saw before the foreclosure crisis crashed onto the national scene."
The report calls for a change in bankruptcy laws.
In the survey, 81% of respondents said potential clients with student loan debt have increased "significantly" or "somewhat" in the past four years.
And 95% of respondents reported that few student loan debtors have any chance of discharging what they owe through a bankruptcy proceeding because they have to prove "undue hardship" - a standard that is difficult to meet.
The bankruptcy attorneys association's report urges a change in bankruptcy laws so those burdened with student debt would be on the same footing as others facing bankruptcy.
"It's not fair and needs to be corrected," said U.S. Rep. Steve Cohen, D-Tenn., sponsor of legislation that would make changes suggested in the report.
Cohen outlined the revisions in a conference call with reporters Tuesday, along with officials from the bankruptcy lawyers association. Douglas Lustig, a trustee for federal bankruptcy court in western New York, agreed that something should be done.
"The problem is that you have former students who filed for bankruptcy and are not able to get a fresh start," said Lustig, who also represents clients in bankruptcy court.
Those with student debt should be able to discharge all or part of the money owed in a bankruptcy proceeding and the law should be changed so the debt can be paid over a longer period of time, Lustig said.
The high cost of college tuition and room-and-board, plus high interest rates charged by some private lenders, are all adding to the problem, experts say.
"The rising cost of education definitely needs to be in the forefront of people's minds," said Cassandra Robinson, 23, who graduated from the University of Rochester in 2010 and owes about $100,000 in student debt.
William Brewer Jr., president of the National Association of Consumer Bankruptcy Attorneys, offered a warning.
"Take it from those of us on the frontline of economic distress in America," he said. "This could very well be the next debt bomb for the U.S. economy."
By James Goodman, Rochester (N.Y.) Democrat and Chronicle
Source: USA Today