Despite an improving economy, student loan defaults are rising

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In the latest sign that not everybody is feeling the benefits of the recovery in the U.S. economy, the U.S. Department of Education recently released statistics showing that student loan defaults are increasing, according to Bloomberg. The rise in defaults comes after three years of declines in late payments and may indicate that more Americans are struggling with debt, namely from student loans and other consumer debts. While student loans are not dischargeable in bankruptcy, student debt is often a contributing factor when a person does decide to declare bankruptcy.

Student defaults rising

The statistics released by the Department of Education track only loans issued by the Education Department. Those figures show that the percentage of Americans who are at least 31 days late on their student loans has increased to 18.8 percent, up from 18.6 percent a year ago. This marks the first time in three years that defaults on Education Department student loans have increased.

Perhaps most alarming about the figures is that they are coming at a time when the economy is recovering and unemployment figures are dropping. Usually, those two facts would mean that more Americans would be better able to pay off their loans. The fact that more Americans seem to be struggling has analysts struggling to explain the uptick in defaults.

Servicers and overall debt load

As the Washington Post reports, one explanation may be due to complaints surrounding student loan servicers. Servicers are private companies who handle debt payments on behalf of the federal government. However, complaints about servicers have been rife, with stories of servicers losing paperwork, sending out inaccurate statements, and processing payments slowly being particularly common. Those problems have been blamed for pushing some borrowers into default. The Obama administration had set out new requirements for servicers, but those requirements were rolled back in April by Education Secretary Betsy DeVos.

A simpler explanation for why student loan defaults are rising is simply because consumer debt overall is rising. As Bloomberg points out, figures from the Federal Reserve Bank of New York show that delinquent consumer debt rose by the end of the quarter ending June 30 of 2017. That debt includes such items as credit cards, mortgages, student loans, and auto loans and it suggests that the problem of student loan defaults is just one piece of a much larger debt problem that more Americans are suffering from.

Is bankruptcy an option?

While it is true that student loans are almost never dischargeable through bankruptcy, it is also true that bankruptcy may still be an option for people who are struggling with student loans on top of other debts. By providing relief from those other debts that are typically dischargeable, bankruptcy can allow borrowers to focus on repaying their student loans. A bankruptcy attorney can help individuals who are struggling with debt understand what their options are for getting back on their financial feet.