The U.S. economy has endured its share of financial crisis in the last few couple of decades. First, there was the savings and loan crisis of the late 80s, then came the internet bubble, followed most recently by the mortgage crises and recession of the last few years. What’s next? Apparently, student loans are the next potential problem.
We know, as bankruptcy attorneys, many clients in Louisville and throughout Kentucky have difficulties dealing with their student loan debt burdens. The woman described in a Businessweek article describes how she works two jobs, still lives with her parents, and is looking for a third job.
She needs the extra income to deal with the $170,000 in student loans she accumulated. She has a master’s degree and works as a parole officer. However, she has put off marriage because of her situation.
The Federal Reserve is examining looking at how the $1 trillion owed on student debt could affect the economy as a whole. The problem is twofold.
With that much money tied up, it is bound to have a significant impact on the economy, and up until now, there has not been much detail available to researchers who want to study how students generate this debt and how it affects the economy after their loans go into repayment.
Most government-backed student loans cannot be discharged in bankruptcy, except in cases of undue hardship. One problem for the government is that the economy is producing so few high paying jobs.
Many borrowers will never be able to pay their student loans off with the low wage jobs that dominate the market. Defaults and discharges could increase as more borrowers’ poor economic condition allows them to meet the undue hardship standard.
The woman in the Businessweek story pays $33 a month on her $72,000 federal loan. At that rate, if no further interest accrues, she will pay it off in the year 2195.
Source: Businessweek.com, “Student Loans, the Next Big Threat to the U.S. Economy?” Caroline Salas Gage and Janet Lorin, January 16, 2014