CNBC's recent report on student debt suggests that student debt is the next housing bubble. Most student loans are not dischargable in bankruptcy. But student loans are guaranteed by the government.
That has created massive incentives for for-profit schools like the University of Phoenix to push students into debt that they don't need and can't afford because the schools are going to get paid anyway. The CNBC report detailed in teary interviews the impact on people's lives when they're straddled with punishing debt.
Two-thirds of American college students will graduate with a sizeable debt; for the class of 2009, the average debt was $24,000. Add loans for graduate school and parent loans on behalf of their kids and the Kuipers' family estimate of $80,000 per student is typical, according to Lauren Asher, who directs the non-profit Project on Student Debt."The need to borrow has grown for all types of students at all types of schools," Asher said. "And the amount that students are borrowing is driven by the share of cost that students and families are expected to cover after aid. Now those costs have risen faster than family incomes, faster than available grant aid."
One of the stories was a family who cosigned student loans for their kids. Now they're straddled with their student loans and their outrageous interest rates.
The answer for parents and students who find themselves in this position is to realize that having bad credit is a hell of a lot better than paying 30 percent interest. If the debt is not manageable then don't pay it voluntarily. The worst case is that they get a judgment against you and try to garnish your wages. It is a hell of a lot more difficult to collect on a judgment then to convince someone to pay voluntarily.
In the meantime, there is at least a chance that the bankruptcy laws may be changed.
