In the past, individuals and families struggling with debt were usually battling high credit card balances and interest rates. For the first time, student loans have taken the position of the number-one unsecured debt owed by Americans. According to the Federal Reserve Bank of New York, more than 11 percent of the $956 billion in current student loans are now in default. Credit card delinquency, on the other hand, has dropped in number for the last four years.
The soft job market has led to many college dropouts and graduates being unable to find employment, contributing to the delinquency in paying back borrowed funds. Rising educational costs, in the meantime, force new students to borrow more and more money to finance a college degree. Credit cards, in the meantime, have tightened their requirements and are no longer handed out to college students without proof of income.
The actual rate of default on student loans may be as high as 20 percent, according to the Federal Reserve Bank. This is because loans that are in deferment are not counted in the default rate even if the students holding these loans will have no way of repaying them when the grace period expires. Defaulted credit card balances, on the other hand, become apparent very quickly and are calculated into the total of debt owed by credit card holders.
Unfortunately, student loan balances are not normally dischargeable under bankruptcy. However, a bankruptcy attorney can review a client’s total debt and come up with a plan to discharge other debts, giving the debtor more disposable income to pay off student loans promptly.
Source: NASDAQ, “Credit card delinquencies fall below student loan delinquencies for the first time,” Dec. 12, 2012