Student loan debt problems are lurking on the horizon. Americans owe $1 trillion on college student loans, more than they owe on credit cards, which is too much. 2010 graduates owed $25,250 on average (up 5 percent from 2009). Parents of 2010 graduates owed $34,000 on average. More parents are going into debt to pay for their childrens’ college ? 17 percent in 2010 versus 5.6 percent in 1993. The default rate is 9 percent for a two-year period ending in 2010, up 2 percent from the previous period. A student who borrows $20,000 a year for four years will have a repayment obligation of $1,000 per month, as much as a small mortgage, according to one financial advisor. (“Student loans the ‘next debt bomb’ for U.S., attorneys warn,” InvestmentNews).
The attorneys mentioned in the article are bankruptcy attorneys. They have reportedly seen a substantial increase in student loan debt in the last 4 years. They have seen more people seeking help with their student loan debt and not finding any ? not even in bankruptcy. 95 percent of the bankruptcy attorneys surveyed said that bankruptcy judges are “very restrictive” in deciding whether to discharge student loan debt, and only a few have a chance of having these loans discharged in bankruptcy, according to the article. There is no time limit on the government’s ability to sue to enforce the repayment obligation. People saddled with overwhelming debt do not spend as much. As a result, the economy is likely to suffer, “setting up a debt crunch reminiscent of the nation’s debilitating mortgage crisis, lawyers say.”
John Rao, vice president of the National Association of Consumer Bankruptcy Attorneys and an attorney with the National Consumer Law Center, was quoted as saying that student loans “will be a drag on the economy for the foreseeable future.” Mr. Rao warned financial advisers to make sure their clients really understand any loans they take out and whether they can repay them. Similarly, investors that hold or are considering investments in student loan debt need to be cautious.
Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.