According to the Federal Reserve Bank of New York, student loan debt in the U.S. has reached $956 billion dollars. In just the third quarter alone, it increased by 4.6 percent.
Yet, the debt amount alone isn’t as troubling as the fact that the number of student loan borrowers who are at least 90+ days delinquent on paying off their loan balances also increased 11 percent. In fact, the number of student loan borrowers who have fallen behind on their payments is now higher than that reported for credit card debt.
Some experts have compared student loans to the subprime mortgage bubble because there are no lending standards (the government does not vet individuals for loans) and the debt has continued to rise beyond individuals’ means to pay it. Unlike mortgage debt, however, student loans are very difficult to discharge in bankruptcy.
Student loans are only dischargeable in bankruptcy if a debtor shows what is called “undue hardship.” Inability to pay for the loans is not undue hardship. While the government will let borrowers defer loan payments, private loan companies do not offer the same options. This means that many student loan borrowers are left without recourse while their student loan interest continues to build.
Yet, there are other ways to seek relief and make student loan debt more bearable. For example, many of the consumers who face large amounts of student loan debt also face overwhelming debt in other areas, such as credit card debt. By discharging the other debt through a Chapter 7 or Chapter 13 bankruptcy, borrowers can focus their efforts on paying down their student loan debt.
Source: CBS Money Watch, “Student loan debt nears $1 trillion: Is it the new subprime?” Jill Schlesinger, Nov. 28, 2012