Student Loan Debt: Emerging Problems for All Age Groups

May 12, 2012

Many debtors understand that a bankruptcy can discharge unsecured debt such as credit cards and medical bills. However, another common form of unsecured debt, educational loans are generally non-dischargeable when they file bankruptcy.

Economists have begun to recognize a growing problem with the amount of student loan debt that Americans have undertaken, and a recent study (released as part of the Federal Reserve Bank's Quarterly Report on Household Debt and Credit) provides some surprising insights into the extent of these burdens. The study, based on data from Equifax credit reports, pegged the current American outstanding student loan balance at $870 billion. To put that figure in perspective, the corresponding figures for credit card debt are $693 billion and car loans are $730 billion.

Just over 15 percent of Americans, or 37 million people, are carrying student loan balances and the average balance is $23,300. That figure has grown substantially over the past decade and is increasing at a rate that is far above other types of debt. One troubling trend is inability of student loan borrowers to pay down on the balances on the student loans: At the end of 2011, nearly 60 percent of outstanding loans had either a past due balance or the balance had not decreased from the previous quarter.

Student loan debt problems are not only for recent graduates. Student loan debt is also putting a considerable burden on older borrowers. A surprising 15 percent of the overall $870 billion national school loan balance is held by debtors who are older than 50. Older borrowers represent nearly 17 percent of past due balances. When these debts do not get paid, parents or grandparents who have co-signed on educational loans may face a garnishment or bank levy to pay off the debt.

Debt Relief Strategies for Student Loan Borrowers

Technically, student loan debtors can qualify for Chapter 7 bankruptcy relief, but only if they can demonstrate an ongoing undue hardship and other qualifying factors. This standard is very difficult to meet, but bankruptcy attorneys can help clients determine if their student loans could be discharged. An attorney can help a debtor understand how the overall financial relief granted by bankruptcy may help their situation even if student loans cannot be discharged.

Alternatively, a debtor can take advantage of new programs that limit federally guaranteed student loan payments from exceeding ten percent of a borrower's discretionary income. By exploring all of their options for regaining financial stability, people with significant student loan debt can learn about strategies for stopping creditor harassment, avoiding foreclosure and halting repossession or wage garnishment.

Article provided by Hoglund, Chwialkowski & Mrozik, PLLC
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