- Thirty-two per cent of consumers filing for Chapter 7 bankruptcy carry student loan debt, according to a new LendEDU study.
- Of that group, student loan debt comprised 49% of their total debt on average.
- Student loan debt is generally non-dischargeable in bankruptcy: If the student loan debt carriers get their debts discharged, they still need to pay their student loan debt.
- Having reached record levels, student loan debt is a key part of The Great American Affordability Crisis plaguing millennials.
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The student loan debt crisis in America continues to get uglier.
According to a new LendEDU study, 32% of consumers filing for Chapter 7 bankruptcy carry student loan debt. Of that group, student loan debt comprised 49% of their total debt on average.
As of 2019, student loan debt is at an all-time high with a national total of $US1.5 trillion. According to Student Loan Hero, the average student-loan debt per graduating student in 2018 who took out loans was a whopping $US29,800.
The LendEDU data illuminates the dire effects of the growing burden of student loan debt. Coupled with a high cost of living and the fallout of the recession, student loans make it harder for millennials to save and put them financially behind – to the point where they may need to declare bankruptcy to be able to pay them off.
Digging into the data
To determine these findings, LendEDU analysed 1,083 individual bankruptcy cases from Upsolve, a non-profit that helps low-income consumers file for Chapter 7 bankruptcy – liquidation bankruptcy for people with limited incomes who can’t pay back all or a portion of their debt. The goal of Chapter 7 bankruptcy is to discharge the debt.
Note that this does not include data for consumers who file for Chapter 13 bankruptcy, which involves a restructuring of debt – the consumer makes payments for three or five years, with the goal of getting the debt discharged at the end.
However, student loan debts are generally non-dischargeable in bankruptcy, attorney Simon Goldenberg of The Law Office of Simon Goldenberg, PLLC, told Business Insider. Those seeking to discharge their credit cards and other unsecured debts would free up their budget to pay student loans, he said.
So if the 32% of student loan debt-carrying consumers filing for Chapter 7 bankruptcy through Upsolve get their debts discharged, they still need to repay nearly half of their debt, since it’s comprised of student loans.
Student loan debt has reached record levels
Student loan debt is one aspect of The Great American Affordability Crisis plaguing millennials.
College tuition has more than doubled since the 1980s, Business Insider previously reported. Consequently, millennials have taken on at least 300% more student debt than their parents, according to Michael Hobbes of HuffPost. Baby boomers had to work only 306 hours at minimum wage to pay off four years of college, he found, while millennials would have to work 4,459 hours.