• 27
  • October
    2011

According to a recent report by the Federal Reserve Bank of New York, Americans now owe more money on student loans than on credit card debt. Last year, the amount of student loans taken out exceeded the $100 billion mark and the total loans outstanding are set to exceed $1 trillion this year.

As we have mentioned previously on this blog, student loans are not easy to discharge in bankruptcy. Courts require that the filer show undue hardship and this requirement is very difficult to prove. This can create a difficult situation for graduates strapped with burdensome student loan payments and little to hope for in terms of earning potential.

According to the College Board, students take out twice the amount of student loans as they did around a decade ago, after adjusting for inflation. And over the last five years, total outstanding debt has doubled. On the other hand, home loans and credit card debt have actually reduced over the last five years.

Lenders for student loans have little risk compared to lenders for mortgages or credit cards, as they are very difficult to discharge in bankruptcy. Experts say that students who borrow large amounts of student loans often end up delaying other life events such as purchasing a home, getting married, and having children. Some believe that student loans are will be the next credit bubble, with borrowers worse off in the end.

Data provided by the federal government shows that 8.8 percent of borrowers were in default on their student loans in 2009, with the highest default rates coming out of for-profit schools.

Source: USA Today, "Student loans outstanding will exceed $1 trillion this year," Dennis Cauchon, Oct 25, 2011.