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, with nearly half the lawyers reporting a significant increase in such cases, according to the report by the National Assn. of Consumer Bankruptcy Attorneys.

Nearly one-quarter of attorneys say the number of potential student loan clients has risen 50% to 100%, while 39% of attorneys report increases 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 — the first time it has exceeded that inglorious mark. 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 can be overwhelming 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 attorneys group says worsening debt levels could spur a financial crisis similar to the mortgage meltdown.

“Take it from those of us on the frontline 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.”