Bankruptcy Lawyers Raise Concerns Over Student Loan Debt Crisis
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Bankruptcy Lawyers Raise Concerns Over Student Loan Debt Crisis

March 28, 2012


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A prominent bankruptcy attorney fears that rising levels of student loan debt could pose a serious threat to the fragile recovery from the recent recession, according to a recent report from the American Bar Association Journal.

William Brewer, the current president of the National Association of Consumer Bankruptcy Attorneys, released a press statement expressing grave doubts about students’ future abilities to repay their massive loans.

In a press release distributed this week, Brewer summarized the results of a survey of 860 bankruptcy lawyers, 81 percent of whom have recently seen an increase in the number of possible clients looking for relief from student loan debt.

In addition to the 81 percent of attorneys who are seeing increased concerns from clients about student loans, 48 percent of attorneys went so far as to say that the student loan problem was "significant."

Thanks to such concerns, Brewer ominously noted that student loan debt "could very well be the next debt bomb for the U.S. economy." And, while student loan debt is bad news for the economy, it is also bad news for individual consumers.

In the survey, 95 percent of bankruptcy attorneys warned potential clients that filing for bankruptcy does not automatically help students dismiss their college loans. In order to discharge student loans in bankruptcy, consumers must prove that they would suffer undue hardship if forced to repay their debts. This standard is not often met in court.

Many observers, however, are quick to note that bankruptcy can help struggling students attempt to eliminate other forms of debt, such as credit card bills or medical debt. By eliminating secondary forms of debt, former students may be able to free up extra cash to repay their student loans.

Thus, even if they don’t qualify for a hardship, students may still reap many benefits from personal bankruptcy. Of course, students aren’t the only ones affected by rising tuition and fees.

Sources indicate that loans given to parents for help with their children’s college expenses have risen by 75 percent in the last six years. And the average parent owes a staggering $34,000 in college loans.

So, as the student loan bubble continues to grow, nervous analysts will continue to watch for signs of a bubble burst that could have major impacts on the economy as a whole.

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