Student debt pushing more people toward bankruptcy, lawyers say

Student-loan debt is pushing an increasing number of young people and their parents toward bankruptcy, according to a survey released Tuesday.

More than four-fifths of bankruptcy attorneys say they’ve seen a notable jump in the number of potential clients with student-loan debt in the last few years, with nearly half the lawyers reporting a significant increase in such cases, according to the survey by the National Assn. of Consumer Bankruptcy Attorneys.

Nearly one-quarter of the attorneys surveyed say the number of potential student-loan clients have risen 50% to 100%, while another 39% of lawyers report spikes of 25% to 50%.

Student debt is rising for obvious reasons: steadily spiraling college costs, financial-aid cutbacks at public universities and a stubbornly weak economy that’s making it difficult for graduates to find jobs.

The average student-loan debt of 2010 college graduates topped $25,000 – a record. Graduating seniors had an average loan burden of $25,250, up 5.2% from the $24,000 owed by the class of 2009, according to the Project on Student Debt in Oakland.

Student-loan debt is brutal for people who can’t pay it off. Unlike many other forms of personal debt, student loans cannot be discharged in bankruptcy, meaning the debt can hang over students well into their adult lives.

The bankruptcy lawyers group, which issued a reporton student-loan debt along with its survey results, says student loans could spur a financial crisis similar to the mortgage meltdown.

“Take it from those of us on the front line of economic distress in America,” said William E. Brewer Jr., the group’s president. “This could very well be the next debt bomb for the U.S. economy.”

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