A college education is now becoming a Catch-22, keeping more and more Americans from reaching financial stability. To compete in many of today’s job markets, having a college degree is essential. But the cost of that degree is pushing an increasing amount of students and their parents into irreversible debt and bankruptcy, according to a report by the National Association of Consumer Bankruptcy Attorneys, a group that represents consumer debtors and their lawyers.
More than four-fifths of bankruptcy attorneys say they’ve seen a notable jump in the number of potential clients with student loan debt, while nearly half say they’ve seen a significant increase. The survey of 860 bankruptcy attorneys in the U.S. also noted that debt collections by student loan providers have become increasingly aggressive in the past 18 months, creating even more problems for today’s borrower.
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%.
The reasons for America’s skyrocketing student loan debt probably aren’t surprising: steadily increasing college costs, financial aid cutbacks at public universities, and a struggling economy that isn’t overflowing with jobs for graduates.
“Even in the best of economic times when jobs are plentiful, young people with considerable debt burdens end up delaying life-cycle events such as buying a car, purchasing a home, getting married and having children,” said John Rao, attorney and vice president of the NACBA. “Piling up student loans in middle age is even more troublesome. And parents who take out loans for children or co-sign loans will find those loans more difficult to pay as they stop working and their incomes decline.”
The average student loan debt of 2010 college graduates exceeded a record high of $25,000, according to The Project on Student Debt, a research and advocacy group out of Oakland, California. And while the average amount of debt has continued to rise, the unemployment rate for recent college graduates jumped from 8.7% in 2009 to 9.1% in 2010 -- the highest annual rate on record for college graduates between the ages of 20 and 24.
But it’s not just Americans in their early twenties facing these threatening levels of debt. According to the report, recent borrowing has also grown very quickly for those in the 35 to 49 age group, with school debt increasing by 47%. And on top of that, it’s not even just students, it’s their parents too. Loans to parents to pay for a child’s college education have increased 75% since the 2005-2006 academic year. About 17% of parents who had a child graduate in 2010 took out loans, up from only 5.6% for the 1992-1993 school year.
With few or no options available for distressed borrowers, parents who co-signed loans now face the loss of retirement savings, retirement homes and other valuable assets. Parents now owe an average of $34,000 in student loans and over a standard 10-year repayment period, that number can jump to about $50,000. Translation: Goodbye nest egg.
With federal and private student-loan debt approaching $1 trillion and now topping credit card debt, America faces a new and major economic threat reminiscent of the mortgage crisis.
“Take it from those of us on the frontline of economic distress in America,” said William E. Brewer, Jr., president of the NACBA. “This could very well be the next debt bomb for the U.S. economy.”
So if you’re thinking about taking out loans for college, HLN Money Expert Clark Howard says never take out private loans for pay for school, only federal loans. If paying for a traditional four-year college is too much, think about first going to a two-year community school, which costs significantly less.
And for those of you parents who are considering paying for your child’s college education, if you cannot afford to do so without dipping into your retirement savings, Clark says then don’t do it! There are plenty of scholarship opportunities for college, but there are no scholarships out there for your retirement! It may take a part-time job or community college for your children to get the education they want, but once the retirement savings are gone, it’s hard to get them back.
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