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Tuesday, March 13, 2012

Higher-Education Bubble: Follow Up

So, remember last week when I was complaining about student loans and you all probably just thought I was some crazy, babbling, Austrian-economics follower?
Well, two other blogs I follow picked up on the impending crisis as well and agreed enough to post articles about it (and I'm sure many more will follow).

Are Student Loans the Next Debt Crisis?

Bankruptcy lawyers are warning that student debt could trigger an economic mess on par with the mortgage crisis.

“Americans now owe more on student loans than on credit cards,” says a study released by the National Association of Consumer Bankruptcy Attorneys this month. “Total outstanding loans exceeded $1 trillion for the first time last year.”

And unlike credit card debt, student loans can rarely be discharged through bankruptcy. The person filing has to demonstrate “undue hardship,” which is difficult and rarely successful. A 2009 USA Today article explains…

“A student loan debtor must try to claim an “undue hardship” to seek bankruptcy protection – a claim that is successful at best about 50 percent of the time. Unlike a traditional bankruptcy filing, a hardship filing requires debtors to file a lawsuit against creditors. That pits the student against corporate lawyers and defense teams, and often requires an expert witness, which can cost the graduate thousands of dollars to arrange.”... (mint.com)

The Consumerist:
Are Student Loans A Ticking Time Bomb For The Economy?

Four years later, we're still standing on the rim of a smoldering crater where the housing market used to be, pledging we'll never let another financial disaster like that happen again. But some prognosticators worry we could soon be bracing for another blast, judging by the growing number of people who can't pay back their student loans.

More than 80% percent of bankruptcy lawyers have seen an increase in clients looking to get out from under their student loans, according to the National Association of Consumer Bankruptcy Attorneys.

And since many of these people don't meet federal hardship standards for discharging a student loan through bankruptcy, it's often the parents who co-signed the loans that face financial ruin.

"This could very well be the next debt bomb for the U.S. economy" says William Brewer, head of the NACBA. "Obviously, in the short term, student loan defaults are not going to have the same ripple effect through the economy that mortgage defaults did... My concern is that the long-term effect may be even graver."... (The Consumerist)

If all these people are concerned about a student loans crisis, then where are all the debt-loving Keynesians?
Deficit spending during a recession is supposed to help the national economy out, what about at an individual level? What say you now Krugman??

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