Are Student Loans the Next Debt Bomb?

Are Student Loans the Next Debt Bomb?
  • Opening Intro -

    The Great Recession may be over in the government's eyes, but for many consumers struggling with finding work or are facing other financial challenges such as homes that are underwater, the picture is far from bright.


Student loans may follow mortgages as the next financial crisis.

Indeed, there is evidence that the other shoe still hasn’t dropped with unemployment expected to rise through the end of next year according to the nonpartisan Congressional Budget Office.

Indeed, the CBO has forecast that unemployment will rise to 8.9 percent by the end of 2012 and climb to 9.2 percent by the end of 2013. This likely means that jobs will be hard to come by with many of the jobless being recent college graduates. That forecast is particularly bad news for debt-laden graduates who finish college owing tens of thousands of dollars to lenders.

Unforgiven Debt

Unemployed recent college graduates quickly learn that although student loan debt can sometimes be deferred, it is one debt nearly impossible to forgive even in bankruptcy. Loans are written in such a way that student loan debt must be paid and courts rarely rule against lenders unless fraud can be proven.

Certainly, students who graduate with a college degree have the potential to earn twice the amount of money that those who only went to high school routinely earn. However, when saddled with college debt, graduates may take many years to pay down that debt, delaying the purchase of their first home and putting off investing until much later. Thus, a high school student who has a job may earn less money, but he or she doesn’t have to shoulder a heavy debt load.

NACBA Survey

Later today, the National Association of Consumer Bankruptcy Attorneys will release a survey that will show a sharp increase in the percentage of student loan defaults. This survey coincides with the 2012 Capitol Hill Meeting the NACBA will be conducting today and tomorrow in Washington, D.C., a meeting where attorneys will be with lawmakers to discuss a number of issues including the pressing student loan crisis.

That crisis is affecting many people including a disabled Vietnam veteran and his now retired wife. The couple co-signed their son’s students loans and are now being sued and risk losing everything that they own. The couple along U.S. representative Steven Cohen; William E. Brewer, Jr., president, National Association of Consumer Bankruptcy Attorneys; and John Rao, attorney, National Consumer Law Center and vice president, National Association of Consumer Bankruptcy Attorneys, will be discussing the next debt bomb and how that might affect students, their families and our nation.

College Planning reference:

grad school prep guide


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Categories: Campus News