Bankruptcy Lawyers Warn of Looming Student Loan ‘Debt Bomb’

  • United States
  • 03/12/2012
  • Debra Cassens Weiss - American Bar Association

Student loan debt could turn into another crisis for the economy, according to the president of the National Association of Consumer Bankruptcy Attorneys.

William Brewer is putting a pessimistic spin on his group’s survey of 860 bankruptcy lawyers. “This could very well be the next debt bomb for the U.S. economy,” Brewer said in a press release (PDF). The Washington Post has the story.

Eighty-one percent of the responding lawyers reported an increase in the number of potential clients they are seeing with student loan debt, according to the press release. Forty-eight percent said the increase was “significant.”

Ninety-five percent said few student loan debtors have any chance of meeting hardship standards to discharge the obligations in bankruptcy.

Parents who co-signed for the loans are also affected, according to the lawyers group. Loans to parents for their children’s college education have increased 75 percent since the 2005-2006 academic year. On average, parents are responsible for $34,000 in student loans.

Brewer told the Post that, in the short-term, loan defaults want have the same ripple effect as mortgage defaults. “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 reluctant to take on student loan debt he said.

John Rao, the group’s vice president, warned of the potential impact on parents accumulating debt in middle age. The parents will find it difficult to repay the loans as they stop working and their incomes decline, he said in the press release.