Student loans, the next debt bomb, calls for bankruptcy law reform

When the housing bubble burst the American economy took a nose dive and now economists fear there is a new debt bomb is about to go off. A report released by the Fed last week showed that student loan debt reached $867 billion, with 27 percent of borrowers at least 30 days behind.

A recent survey by the National Association of Consumer Bankruptcy Attorneys showed that 80 percent of bankruptcy lawyers have seen an increase in people seeking relief from student loan debt.  But student loans are backed by the government so it is extremely difficult to have these debts discharged as most people don’t qualify for hardship.

The costs of college have sextupled since 1985 and for-profit colleges have experienced rapid growth. The Roosevelt Institutes Mike Konczcal suggested to Think Progress that changing some of the restrictions on discharging student loans issued in the 80’s and 90’s could help since, “it’s hard to see this as anything other than a giant subsidy to private agents.”

When college graduates exit college they leave with such high debt that they are unable to purchase homes and cars. Recovery in the housing market largely depends on the ability of young people to purchase property.

Bankruptcy attorneys are able to help people most of their debts, but they will still have to carry student loan debt. In rare occasions, a bankruptcy lawyer can show that student loans create a hardship and have them dismissed, but this is very difficult to do and most students will spend decades trying to pay them off.