Student Loans Push College Graduates Into BankruptcyStudent loan defaults increased from 7 percent to 8.8 percent in 2010 according to a report released by the U.S. Department of Education.  And many of those student loan borrowers who have fallen into default are filing bankruptcy hoping to receive some type of student loan debt relief. In 2010 13.6 percent of debtors filing bankruptcy held a college degree. That’s an increase from 2006 when only 11.2 percent of bankruptcy filers had college degrees.

“The Great Recession has had a dramatic impact on the bankruptcy filings of American consumers across the economic spectrum — including college-educated, high-income earners,” said Leslie Linfield, executive director and founder of the Institute for Financial Literacy, which conducted the study.

“While less educated, low-income individuals continue to represent the typical bankruptcy filer, this report underscores a sophisticated evolution of the profile of the American debtor that now extends to disparate age, income and ethnic groups,” Linfield said.

Because of rampant unemployment around the country, many student loan debtors seek bankruptcy protection because they have either lost their job or they have suffered a significant decrease in their income.  Many professionals holding $50,000 plus in student loan debt are finding it impossible to service that large debt load on a reduced salary. By filing bankruptcy, student loan debtors hope to eliminate other debts such as credit cards and mortgages so that they can pay off their school debt which is nearly impossible to discharge in bankruptcy.

The U.S. Department of Education has offered income contingent repayment plans to student loan debtors holding federally backed loans.  Income contingent repayment plans have been helpful for post-bankruptcy debtors trying to get on their feet. Even if a debtor has no income the income contingent payment plan offers a payment of $0 per month to the unemployed.


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