• 15
  • February
    2012

We've been writing more about student loan debt and bankruptcy lately, in part because there seems to be increasing attention to the struggles of graduates given the poor economy and high unemployment rates. There is also increasing concern that the situation could be the next financial crisis in the making.

As we've noted, student loan debt is difficult to discharge in bankruptcy, and requires a showing of "undue hardship," a high standard to meet. So, while it isn't impossible to discharge student loans in bankruptcy, most borrowers will still be carrying their loan debt even if they bite the bullet and file for bankruptcy protection.

The prevalence of student loan debt is widespread. In 2010, student borrowing rose to the $100 billion mark, and 2011 say the total outstanding loan amount reach $1 trillion. Student loan debt, at this point, exceeds credit card debt in the United States.

It isn't only students facing financial difficulties because of student loan debt. Parents are picking up some of those costs too. According to sources, parent borrowing has risen 75 percent since the 2005-2006 school year and an estimated 17 percent of parents whose children graduated in 2010 had taken out loans, which is 5.6 percent higher than the number in 1992-1993.

Many bankruptcy attorneys have reported significant increases in potential clients with student loan debt. Many of them are concerned about the situation, and the National Association of Consumer Bankruptcy Attorneys is currently urging changing bankruptcy law so that student loan debt can be discharged.

It isn't clear at this point whether that suggestion will be taken seriously by those in a position to make those changes. What is clear is that many graduates are struggling and in need of financial relief.

Source: Forbes, "Student Debt: The Next Financial Crisis?" Halah Touryalai, February 8, 2012.