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Student Loan Debt - More Borrowers Becoming Delinquent

Author: Nahrgang & Associates, P.C.

Published: 2012-04-08

Synopsis and Key Points:

A bill before Congress would eliminate a provision that made private student loans non-dischargeable.

Main Digest

More Borrowers Becoming Delinquent on Student Loan Debt - Many across the country are struggling to pay their student loans, and even defaulting on payments. Some lawmakers are attempting to make student loans dis-chargeable in bankruptcy to offer some relief.

Student loan debt is skyrocketing in the U.S. According to an analysis by the Federal Reserve Bank of New York, student borrowing exceeded $1 billion in 2011 alone, and total student debt for the country surpassed the $1 trillion mark. Student loans have replaced credit card debt as the number one source of debt for the nation. The total student loan debt in the U.S. has doubled in the past five years and students are borrowing at a rate double what they did ten years ago, adjusting for inflation, according to the College Board, a non-profit college member association. Many in Pennsylvania and across the country are struggling to pay their student loans, and even defaulting on payments. Some lawmakers are attempting to make student loans dischargeable in bankruptcy to offer young people overwhelmed with debt some relief.

Many People Defaulting

More people are defaulting on their student loans than ever before. Only 39 percent of borrowers were paying down their debts in the third quarter of 2011. Those still in school made up 29 percent of borrowers and another 18 percent of borrowers had economic hardship deferments on their loan payments. The remaining 14 percent of student loan borrowers - approximately 5.4 million borrowers holding about 10 percent of the country's student loan debt - were in default.

Reasons for Non-Payment

One of the main reasons that graduates are not paying their loans is the difficulties they are having finding jobs. The job market seems to be tightest for those just starting out. A Federal Reserve Bank of Cleveland analysis of unemployment statistics showed an unemployment rate for those 20 to 24 years old of 13 percent, compared to an overall unemployment rate of 8.3 percent.

Additionally, young workers have seen their wages shrink the most since the market downturn of 2008.

Making Student Loans Dischargeable

In light of the massive amount of student debt and the trouble people are having paying it back, some lawmakers have proposed legislation that would give those who took out private student loans the same right to discharge those loans in bankruptcy as they have to discharge other forms of debt.

Sponsors of the legislation have targeted private loans specifically since they are a potentially more hazardous financial proposition than federal student loans. Private loans do not have the same income-based repayment or economic hardship deferment options.

A bill before Congress would eliminate a provision in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that made private student loans non-dischargeable.

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