Denver Seminary

Bankruptcy attorney: "Student loans could be the economy's 'next debt bomb!'"

A new study has found that there has been a significant increase in the number of consumers seeking the help of bankruptcy attorneys as a result of outstanding student loan debt.

The National Association of Consumer Bankruptcy Attorneys recently reported that 81% of those professionals surveyed said that the number of potential clients with sizable student loan balances has increased either "significantly" or "somewhat" in the past three or four years.

Nearly half -- 48% -- said the increase was significant, and 39% said the number of student loan cases they handled has risen between 25% and 50% in that time. An additional 23% reported increases of between 50% and 100%. In all, 95% said they were able to help only a small number of student loan debtors obtain a discharge of those balances as a result of undue hardship.

As a consequence, there are concerns that these outstanding balances could create a debt problem nearly equivalent to that observed during the housing meltdown. The typical college graduate carried a debt of $25,250 in 2010.

This may be especially troubling because in nearly all cases, consumers who seek out bankruptcy protection are unable to get their student loan debt cleared as part of the filing.

"Take it from those of us on the front line of economic distress in America: This could very well be the next debt bomb for the U.S. economy," said William Brewer, the president of the National Association of Consumer Bankruptcy Attorneys. "The amount of student borrowing crossed the $100 billion threshold for the first time in 2010, and total outstanding loans exceeded $1 trillion for the first time last year."

In addition to their student loan debts, many college graduates have at least a few thousand dollars in credit card debt spread across a number of accounts. Recent legislation related to borrowing for those under age 21 has helped mitigate this problem somewhat, but the process has been slow, and the problem has been worsened by a tough job market.

Taken from http://money.msn.com/credit-rating/student-loans-push-up-bankruptcies-credit.aspx