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Sobering statistics in new study of student loan default rates

$1.4 trillion: this is how much American graduates owe in student loan debt today. If that figure sounds alarming, there is more bad news in a recent Brookings Institution study of the latest data released by the U.S. Department of Education. The study sought to examine student debt over a longer term than the often-studied first few years after graduation. It found that, of borrowers who started college back in 2004, nearly two in five will likely default on their student loans within the next five years.

Some are more likely than others to default. Students at for-profit colleges and universities were twice as likely to default on their student loans as those who studied at public two-year universities and four times as likely as those enrolled in community colleges. Individuals who do not complete a degree program are also more likely to default.

Students with smaller debts -- under $6,125 -- are more likely to default than those with larger debt loads of over $24,000. African-American students are also burdened with more student loan debt and default at a significantly higher rate than white students, higher even than the default rate of white borrowers who drop out of college.

While student loans cannot be discharged in Chapter 13 bankruptcy (perhaps another factor underlying these default rates), bankruptcy can eliminate many of the other debts that students and recent graduates often incur. Credit card debt, medical debt and other types of unsecured debt can all be discharged in Chapter 13, and the resulting fresh financial start can help students stay current on their student loans and avoid default. And Chapter 13, for those who are eligible, avoids the liquidation that is a part of Chapter 7 bankruptcy, meaning filers will most likely be able to keep their homes and other important assets.

Source: Forbes, "Student Loans In Crisis As Two In Five Likely To Default," Nick Morrison, Jan. 23, 2018

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