Student loan debt: The next financial disaster?

CBS News ^ | February 9, 2012 | By Lynn O'Shaughnessy

[Oldeconomybuyer]

(MoneyWatch) Student loan debt is pushing a growing number of Americans into bankruptcy and an organization of bankruptcy lawyers predicted this week that the college debt problem could become as big a catastrophe as the home mortgage crisis.

"Take it from those of us on the frontlines of economic distress in America, this could very well be the next debt bomb for the U.S. economy," warned William E. Brewer Jr., president of the National Association of Consumer Bankruptcy Attorneys.

The association just released a survey of 860 bankruptcy attorneys that revealed some disturbing trends. Here are some of the most troubling ones:

More than four out of five bankruptcy lawyers say that the number of potential clients they are seeing with student loan debt has increased in the recent years.

Twenty-three percent of bankruptcy lawyers have witnessed cases involving student loan problems jump from 50 percent to 100 percent in the past three to four years. Another 39 percent of the attorneys have seen their potential client cases increase 25 percent to 50 percent in the same period.

[Jonty30]

Knowledge is free. Crack open a book, rent some videos and practice.

It should be possible to do that and still become certified.

[kearnyirish2]

“Those same kids could still take those lower paying jobs, live at home for a couple of years and throw everything they make into their debt and be relatively debt free in a couple of years. Even a 9 buck an hour job, they can pay off about 25 grand in those couple of years.”

Companies don’t want to pay anyone over 22 anymore; they save a lot of money by hiring uneducated young people (even at a high school level), and don’t care that the service is horrible to non-existent.

[Jonty30]

That I understand, but I can’t totally blame the companies as I have worked with many of these kids.

For the quality of work they are willing to put out, you may as well hire a barrel of monkeys.

[OldPossum]

Now, this happened at the dawn of time, when I first attended college, in 1962. I paid for my first year from my savings during my military service. Thereafter, I supported my college education from a mix of very low government loans (about $800 a year) and the income from my work as an announcer at nearby commercial radio stations. When I graduated after 3.5 years I left owing something on the order of $2,000, which I paid off within a year or so.

Of course, that was then and this is now. Then, the college degree really meant something and I easily got good employment. Now, after many years of work, my wife and I are retired and both of us have very nice pensions.

We feel sorry for those who went to college in recent years, they are so screwed.

[tbw2]

The use and abuse of unpaid internships also come to mind.

[RFEngineer]

The right thing to do is to allow student loans to be discharged in bankruptcy.

Of course that will shatter the very foundations of academia as the money spigot is immediately shut off. That’s another reason why it is the right thing to do.

[kearnyirish2]

“The use and abuse of unpaid internships also come to mind.”

I worked full-time while going to college full-time; I always thought unpaid internships were for students who were “independently wealthy” (their parents were footing their bills). I can’t believe in this day and age (and I felt this way years ago) that holding out the possibility of a job would motivate someone to work for free (though I understand that now older workers are doing it to avoid resume gaps - which is sad but practical).

[TheCPA]

Tax debts owed to the IRS can be discharged in bankruptcy under certain conditions. See this article from the August 2010 issue of the Journal of Accountancy:

http://www.journalofaccountancy.com/Issues/2010/Aug/20102591.htm