A group of bankruptcy attorneys who predicted the mortgage fiasco that helped cause the current economic downturn said today that rising student debt could fuel another crisis just as big.
Nearly half the members of the National Association of Consumer Bankruptcy Attorneys (NACBA) said in a survey conducted last month that the number of their potential clients with student-loan debt has increased significantly in the last four years.
The association said average debt for college seniors who graduate with student loans rose 5 percent in 2010—the last year for which the figure is available—to $25,250. The amount of student borrowing annually has crossed the $100 billion threshold, and total student debt now exceeds $1 trillion.
“This could very well be the next debt bomb for the U.S. economy,” said NACBA president William E. Brewer, Jr.
The amount of debt taken out by parents to pay for college for their children has grown 75 percent since 2005, the association said. An estimated 17 percent of parents whose children graduated in 2010 took out loans, up from 5.6 percent a decade earlier. Parents who took out college loans owe an average of $34,000, which will compound to $50,000 over a standard 10-year repayment period.
“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,” threatening their assets and retirements, said John Rao, attorney for the National Consumer Law Center and NACBA’s vice president.
More than two-thirds of the 860 bankruptcy attorneys surveyed also said that student-loan providers are becoming more aggressive in collecting debts.