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Student Loan Debt Bubble the Next to Burst

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There's another very real economic threat that the U.S. is facing, which could be just as devastating as when the housing bubble burst: the student loan debt bomb

There’s another very real economic threat that the U.S. is facing, which could be just as devastating as when the housing bubble burst. The student loan debt bomb could be the next economic crisis, according to the National Association of Consumer Bankruptcy Attorneys.

As the country faced economic troubles over the last three to four years, students have had few options but to continue taking out loans to pay for college, and with a tight job market, unpaid student loans have been piling up.

A survey by NACBA revealed that 81% of bankruptcy attorneys said clients with student loan debt has increased “significantly” or “somewhat” over the last three to four years.

Image copyright NACBA.

Student loan debt has officially topped credit card debt in the U.S. with college seniors who graduated in 2010 owing an average of $25,250. That’s up five percent from the previous year, but still isn’t nearly as staggering as it is for older borrowers. The debt burden for those in the 35 to 49 age group increased by 47%.

Two huge thresholds have been passed regarding student loans. In 2010 the amount of borrowing crossed $100 billion, and total outstanding loans exceeded $1 trillion in 2011.

"Take it from those of us on the frontline of economic distress in America: This could very well be the next debt bomb for the U.S. economy,” said William E. Brewer, Jr., president of NACBA, in a statement. “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.”

And parents have been pulled in as well. As they look to retirement and see their incomes decline, those who took out loans for their children or co-signed a loan will find it difficult to pay them back. Since the 2005-2006 academic year, loans to parents jumped 75%.

John Rao, vice president of NACBA and attorney for the National Consumer Law Center, said in a statement that the situation is very similar to what happened just before the housing market bubble burst. More consumers are unable to find any help for their unmanageable student loan debt.

Rao added that the student loan debt crisis could have major effects on the economy.

“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,” he said.

Now, more people are taking these loans on in middle age, either because they’re going back to school for retraining when they can’t find jobs in their industry, or because they’re parents taking on loans for their children’s college education.

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