Student loan debt is in the news again — topping $1 trillion in the U.S. For the first time ever, Americans owe more student loan debt than credit card debt. That’s not necessarily good news for students — and certainly not good news for the credit card industry, considering the likely interplay of several predictable factors.
First, student loan debt is practically non-dischargeable in bankruptcy. It is theoretically possible to discharge student loan debt, but the legal standard a debtor must meet to do so is “undue hardship.” One component of undue hardship means demonstrating to a federal judge that there is a “certainty of hopelessness” to the debtor’s financial future. Bankruptcy judges are quite reticent to don a purple satin turban and gaze into the future to test said “certainty of hopelessness,” so it is most often found that the debtor failed to establish that his hopelessness was, in fact, certain.
Second, student loan debt keeps growing at a rate of $40 to $50 billion each month. Tuition increases are outpacing inflation, fewer parents have access to HELOC’s to help pay tuition, and student loan lenders are happy to make loans to any needy student with a pulse, thanks to Family Federal Education Loan Program (FFELP) loans backed by the federal government and the general non-dischargeability of student loan debt.
Third, consider the fact that the unemployment rate for young Americans aged 18 – 24 years is about 46 percent, the worst employment rate for this age group in 64 years. As if that fact is not depressing enough, young Americans’ average income has dropped 5 percent in the last 3 years, while the rest of America’s workforce averaged a 5 percent increase in income.
As the economy continues to limp along, recovering in fits and starts, young Americans are piling on more student loan debt than ever before, with the worst employment environment in 64 years. Sounds like a recipe for a perfect bankruptcy petition.
In the next 3 – 5 years, we can expect bankruptcy filings to increase, as more and more Americans struggle to repay the mountain of student loan debt. The student loan debt may not be dischargeable, but the credit cards, medical bills, and unpaid utilities sure are.
Which is exactly why student loan backed securities may be a good investment. Those loans will have to be repaid eventually, either by the borrowers or good old Uncle Sugar. Consumer credit cards and other unsecured lenders on the other hand, not so much.
If you are a lender seeking payment of a defaulted loan from a guarantor, consult with an attorney experienced in commercial lending and litigation. The attorneys at Glass & Goldberg provide high quality, cost-effective legal services and advice for clients in all aspects of business litigation and transactional law. Call us at (818) 888-2220, email us at firstname.lastname@example.org, or visit us on the web at www.glassgoldberg.com to learn more about the firm and to sign up for future newsletters.