Bankrupt at 21: Trapped in a web of Student Loans

March 19, 2012 at 9:00 am by: seeta Category: 2012 Election, Anti-Racism, Civil Rights, Consumer Rights, Education, Poverty

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From Fiscal Times:

Bankruptcy lawyers have a frightening message for America: They’re seeing the tell-tale signs of a student loan debt bubble that is placing increased financial pressure on families struggling with their children’s mounting debt. According to a recent survey by the National Association of Consumer Bankruptcy Attorneys, more than 80 percent of bankruptcy lawyers have seen a substantial increase in the number of clients seeking relief from student loans in recent years.

In most cases, those clients could not meet the tough federal hardship standards that are necessary to discharge a student loan through bankruptcy proceedings. Instead, many of these unwary parents or guardians who co-signed the student loans face the prospect of losing their life savings, cars or homes to collection agencies for aggressive private lenders.

“Obviously, in the short term, student loan defaults are not going to have the same ripple effect through the economy that mortgage defaults did,” Brewer told The Fiscal Times. “My concern is that the long-term effect may be even graver, because people who need student loans to try to get a higher education or retraining” will be unwilling to run the risk of taking out a student loan. “Our best and brightest won’t necessarily get the education that they need to move us forward,” he added.

The amount of student borrowing skyrocketed from $100 billion in 2010 to more than $1 trillion last year – or more than all the outstanding U.S. credit card debt. At the same time, student loan defaults rose to 8.8 percent in 2011, up from 7 percent the previous year.