Student Loan Debt in Bankruptcy: An Empirical Assessment

Abstract

Education loan debt in the U.S. recently reached $1.2 trillion. Thirty-nine million Americans -- nearly 20% of U.S. households -- owe student loans, and student loans are by far the fastest growing component of non-housing consumer debt. For example, in fourth quarter 2013, U.S. households incurred $82 billion in debt (exclusive of housing debt), a 3.3% increase from the previous quarter. Of this amount, $53 billion (65%) was student loan debt. In contrast, auto loans and credit card debt accounted for only $29 billion.

Student loan debt is also a rapidly increasing element in consumer bankruptcy. This study examines the growth of student loan debt, income, and other types of debt in consumer bankruptcy cases filed each year from 2005 to 2013. For this study, I obtained data from 500 randomly-selected cases per year (4500 cases in total). Among my findings, the percentage of debtors with student loan debt increased from 15.7% in 2005 to 22.3% in 2013, while the average student loan debt load for such debtors more than doubled from $15,350 to $32,096 during the same period. I also present regression analyses (coefficients of determination) for each year comparing student loan debt with total overall debt, and with monthly income. The analysis shows that debtors who have borrowed for education have similar levels of debt and income as other debtors. In other words, borrowing for education does not translate into higher income or greater affluence. Finally, I provide basic growth rates charts tracking annual percentage changes in total debt, income, and student loan debt. The charts show that the yearly growth rate of student loan debt consistently exceeds that of income and other types of debt. This suggests that the growth of student loan debt in the U.S. is on an unsustainable trajectory.

Keywords: bankruptcy, student loans