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Association of bankruptcy lawyers says student loans are a problem

Student loan debt in the United States totals nearly $1 trillion. Last year, federal and private student loan debt surpassed overall credit card debt in the country. Cincinnati bankruptcy attorneys know that student loan debt is rarely dischargeable in bankruptcy under current law.

A recent survey of bankruptcy lawyers across the country indicates that the number of people running into financial distress who are carrying large student loan balances has jumped dramatically in recent years. Student loans do not only necessarily affect America's youth, as many students have obtained loans that were granted only after the student's parents co-signed on the loan. That parent signature obligates the parent on the loan if the student runs into financial problems after graduation.

A recent survey of bankruptcy lawyers across the country shows that 81 percent of debt-relief attorneys have seen an increase in potential bankruptcy clients suffering under student loan debt. Nearly half of bankruptcy lawyers have seen a significant increase in issues involving student loans over the past three to four years, according to the survey released by the National Association of Consumer Bankruptcy Attorneys.

Student loans are treated differently under bankruptcy law than many other types of debt. Rarely are student loans dischargeable. A debtor must show "undue hardship," which the bankruptcy laws set a high bar in terms of proof of the hardship.

The group that ran the survey says that student loan debt may be the next financial bomb in the nation's economy. The NACBA says that recent borrowing for higher education represents a true threat, which is reminiscent of the mortgage crisis that many economists say contributed substantially to the economic meltdown.

Source: Bloomberg, "U.S. Student Debt Could Be Next 'Bomb,'" Janet Lorin, Feb. 7, 2012

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