College debt burden driving more toward bankruptcy - Greenville News
Growing student loan debt at a time when many college graduates are unemployed or underemployed could mushroom into an economic time bomb on par with the home mortgage crisis, a national bankruptcy lawyers’ group warns.
The National Association of Consumer Bankruptcy Attorneys reports that 81 percent of 860 bankruptcy lawyers recently surveyed said potential clients with student loan debt has increased “significantly” or “somewhat” in the last three or four years.
More than a third said potential student loan client cases are up 25 to 50 percent. Nearly a quarter of the attorneys reported increases of 50 percent or more.
“This could very well be the next debt bomb for the U.S. economy,” said William Brewer, president of the association.
Unlike credit card debt or money owed on homes, cars and most other debt, student loans typically aren’t forgiven in bankruptcy.
“It’s incredibly difficult to get student loans discharged in bankruptcy,” said Mark Kantrowitz, publisher of finaid.org.
Student loans tend to be “very low risk” to lenders, said Chuck Knepfle, director of financial aid at Clemson University.
That benefits the lender and hurts the student, Knepfle said.
It’s “frustrating,” Knepfle said. “Credit card debt has better consumer protection than student loans.”
Borrowers in trouble repaying federal student loans can opt for relief including income-based or income-contingent repayment, but private student loans offer little flexibility, Knepfle and Kantrowitz said.
Knepfle would like to see lawmakers allow private loans to be forgiven in bankruptcy settlements and keep the status quo on federal loans because there are ways to help those borrowers.
U.S. Sen. Lindsey Graham is tracking the issue “as possible avenues that could be beneficial to both borrowers, lenders and the taxpayer are explored,” said Kevin Bishop, a spokesman for the Seneca Republican.
Private loans “are among the riskiest ways to pay for college,” according to The Project on Student Debt. “Private loans lack the basic consumer protections and flexible repayment options of federal student loans, such as unemployment deferment, income-based repayment, and loan forgiveness programs.”
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With “lagging unemployment and underemployment” in the current economy, “More people are struggling to repay their loans,” Kantrowitz said. “And there are a significant number of people who are employed in their target job and are not underemployed and are nevertheless struggling.”
Caught between an economic downturn and rising tuition, more students are borrowing more money to pay for higher education.
College seniors who graduated in 2010 carried an average of $25,250 in student loan debt, up 5 percent from the previous year, The Project on Student Debt reports.
The average in South Carolina was $23,623, with 55 percent of students carrying some loan debt.
Unemployment for recent college graduates climbed from 8.7 percent in 2009 to 9.1 percent in 2010 — t...