Fear The Bankruptcy Bomb, New Report Says

The current state of student loan debt mirrors the lead up to the foreclosure crisis, according to a recent report by a trade group of bankruptcy lawyers.

And that “bankruptcy bomb,” as the report calls it, isn’t just a problem for debtors who are in over their heads. According to the report [PDF], which was released by the National Association of Bankruptcy Attorneys, it could have negative repercussions on the entire economy.

“And, as with the mortgage foreclosure crisis, the staggering amounts owed on student loans also will have repercussions for the broader economy,” reads the report. “Just as the housing bubble created a mortgage debt ‘overhang’ that absorbs the income of consumers and renders them unable to afford to engage in the consumer spending that sustains a growing economy, so too are student loans beginning to have the same effect, which will be a drag on the economy for the foreseeable future.”

Part of the problem, according to the report, is that students are taking on increasing debt for degrees that are not particularly lucrative. And any number of traumatic events can results in students missing a payment, according to the researchers, which sets students up to spiral from delinquency to default.

Students aren't the only demographic caught up in the crisis, according to the report: Parents who took on debt for their children, many of them near retirement age, are going to suffer as well.

“Students and workers seeking retraining are borrowing extraordinary amounts of money through federal and private loan programs to help cover the rising cost of college and training,” reads the report. “In many cases, parents responsible for the student loans are in or near retirement years and facing repayment demands.”

(Read About The Top Ten Schools With the Highest—And Lowest—Student Debt.)

According to credit data, debt is also growing among older and nontraditional students, many of whom returned to school hoping to pick up new skills while the recession blew over.

The White House has pledged to make higher education more affordable and accessible, partially by basing federal aid to colleges on tuition rates.

The National Association of Consumer Bankruptcy Attorneys is a trade group established in 1992 to represent the lawyers of debtors in the United States. According to the group's web site, they have more than 4,000 members.

Jon Christian is a reporter with Campus Progress. Follow him on Twitter @Jon_Christian.

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