Delinquent student loans reach record high

The student debt crisis is approaching fever pitch in the United States as more borrowers than ever before falling behind on their student loan payments, Bloomberg reported recently.

 

According to the U.S. Department of Education, 11 percent of student loans were at least 90 days past due at the end of 2012. At 90 days past due, a student loan is considered seriously delinquent. Today's delinquency rate is nearly twice that of a decade ago; in early 2003, according to the report, only 6 percent of student loans were past due by 90 days or more.

Economy compounds debt problems

In the aftermath of the Great Recession, the U.S. economy has remained sluggish, magnifying the financial distress of many recent graduates who are entering the job market with substantial debt. Two out of three college graduates leave school with some amount of debt, according to the Pew Research Center, and those with student debt owed an average of $26,600 apiece in the class of 2011.

Compounding the issue of student debt is the fact that nearly half of adults ages 25 to 34 say they are either unemployed or underemployed, according to American Student Assistance, a nonprofit organization that provides student loan education for college students and alumni.

Student loans and bankruptcy

Student loans are typically much more difficult to discharge in bankruptcy than other types of debts, such as medical bills or credit card balances. However, many people struggling with student debt are still able to find relief through bankruptcy by eliminating other debts, thereby making their educational loan payments more manageable.

In addition, while student debts are rarely eligible for discharge during Chapter 7 "liquidation" bankruptcy, educational loans are treated similarly to other debts during Chapter 13 bankruptcy, which is also known as debt reorganization.

During Chapter 13 bankruptcy, a person's debts are restructured and a payment plan is created that allows the borrower to pay off the highest priority debts over a period of a few years. For some people struggling with student loans and other debts, reorganization offers a way to catch up on missed payments and get back on track, while also protecting against foreclosure and other collection actions.

Seek legal help for debt problems

If you find yourself falling further and further behind on your debts, it may be time to discuss your situation with an attorney. A lawyer with a strong background in bankruptcy and debt relief law can advise you of your options and help you pursue the right course of action for your unique circumstances.