Student debt could prompt the next economic crisis

Lin Chai

UC students, like most university and college students across the country, are continuing to take out more loans in a pattern which experts believe may result in a “debt bomb” equivalent to the mortgage crisis in 2008. Whereas the mortgage crisis left many middle and lower income families in dire conditions, the disastrous consequences of the potential “debt bomb” would largely fall upon students who are already immersed in debt.According to a survey by the National Association of Consumer Bankruptcy, more than 80 percent of bankruptcy attorneys state that in the past three to four years, the number of their potential clients with student loan debt has increased “significantly” or “somewhat.” Furthermore, nearly 25 percent of bankruptcy attorneys said they have seen potential student loan client cases surge from 50 to more than 100 percent.

Student loans cannot be discharged in bankruptcy; these loans will remain until paid off. The bankruptcy attorney in the survey also noted that few student loan debtors will be exempt from paying off their loans because of undue hardship.

The situation is made worse by recent trends in tuition increases. In the 2012-2013 academic calendar, the cost for an undergraduate student attending the University of California is around $13,600 in tuition and fees. In 2011, just one academic school year before, tuition and fees were approximately $11,800—a situation which suddenly forced students to find another source to fill the nearly $2,000 gap.

The percentage of students taking out loans to pay for tuition has also increased dramatically in the past couple of years.  “I know a few people who still haven’t paid off their loans yet. It seems like the topic comes up quite often in conversation and they’re always worrying about whether or not they can pay off their loans in time,” stated Amanda Hong, an economics/administrative studies major at UC Riverside, in an interview with the Highlander.

A recent report by the Federal Reserve Bank of New York found that existing student loans now top $1 trillion. This scenario has now switched the nation’s main source of debt from credit cards to student loans.

Parents must often bear the burden of these loans, thereby affecting an entire family whose living standards must often decrease to account for debt repayments.“I was personally put in this situation during my first year. My parents had to take out a loan to help pay for my education. This was a burden to me because I felt really guilty and bad asking for extra help because they were already paying and continue to pay for a lot of my college expenses. I am sure other students were put in the same situation,” stated Jasmine Sima, a third-year pre-business major. “Also, I am worried about paying back my loans on time. I currently have subsided loans and unsubsidized loans. I am concerned about my [unsubsidized] loans because interest accrues from the time the loan is disbursed adding more financial burden in the future.”
Despite these difficult economic conditions, California students may face better prospects than their peers in other parts of the nation. The Daily Bruin, citing a study by the Project on Student Debt, reported that California students have $7,000 less in debt than the national average and has the fifth lowest debt figures.
“I think there is a definite spiral when it comes to student loans. While they may help at first, they still linger in people’s minds years after they’ve graduated. I’ve lost count of how many times I’ve heard people joke about how they’ll still be paying off their student loans when their kids start college,” stated Hong.

Meanwhile, fourth-year UC Riverside student Kent Dunn noted that the grim state of the job market has convinced many students that they need to obtain an advanced degree if they wish to be competitive in the workforce. “This means more loans and more debt,” stated Dunn, who also criticized rising tuition as a cause of the observed loan patterns.

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