Student Subprime Debt Surge

For quite some time, commentators and consumer protection advocates have voiced concerns about student loan debt. According to a recent report from CNBC, student subprime debt has risen drastically over the last year, contributing to the trillions of dollars of student debt throughout the country. As an article in MarketWatch explains, some student borrowers, especially those who took out student loans to pay for for-profit colleges, may be more similar than we might think to “homeowners who used shady mortgage products to finance their homes in the lead up to the housing crash.” Indeed, “borrowers who took out student loans to attend for-profit schools defaulted at the same or higher rate within five years as those with subprime mortgages.”
Now that the numbers reflect a surge in student subprime debt, what can we expect for borrowers who owe money on these loans? Is personal bankruptcy ever an option for student loan debt?
Student Loan Debt Rises While Creditworthiness of Borrowers Declines
What characterizes a subprime loan? In most cases, subprime loans are those with high interest rates that are taken out by borrowers who do not have sufficient creditworthiness to obtain a better offer. When students have poor credit scores and/or poor credit history, they can easily end up with subprime loans that for which they are unable to make required monthly payments.
According to the CNBC report, the amount of subprime debt often rises in relation to the number of borrowers with subpar credit: “As the total student loan debt continues to surge, the quality of borrowers is in steep decline.” This relationship between subprime student debt and type of borrower can also become cyclical; as more student borrowers are unable to make payments, their credit profiles also take a hit. Just how bad is the student subprime debt crisis?
Subprime Student Loan Debt Surpasses Eight Billion in the First Quarter
In the first quarter, “the total level of debt for so-called deep subprime borrowers totaled $8.2 billion,” as CNBC reported. That number represents an increase of 32% from the same period just last year. What is a “deep subprime borrower?” SNL Financial, which provided the data, is referring to borrowers who have a credit score of less than 580.
The 32% increase is surprising to commentators who have been tracking student loan debt. Indeed, as SNL researchers indicated, “it was the first year-over-year increase in more than two years and the largest jump since 2009 when high unemployment rates from the Great Recession sent many consumers back to school.”
The rise in subprime student loan debt comes at a point at which household debt is also increasing significantly, and recently it was estimated at $12.73 trillion (which shows an increase by $50 billion since 2008). Of that household debt, around $1.34 trillion is student loan debt. Of that amount, approximately 11%, or just over $147 billion, is “seriously delinquent.” While economists do not believe the rate of subprime student loan debt could result in another financial crisis, it is cause for some concern.
Discuss Your Options with an Oak Park Bankruptcy Lawyer
For borrowers with insurmountable debt, consumer bankruptcy may be an option. While it can be different to discharge student loan debt through bankruptcy, it is not impossible. An experienced bankruptcy lawyer in Oak Park can discuss your options with you today. Contact the Emerson Law Firm to learn more.
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