Family Debt Shoved to Pre-Crisis State Because of $1.3 Trillion Student Loans


There was a difficult lesson to be learned in the United States in 2008 during the financial crisis. Many lost their homes, their cars, and their jobs as a result of extremely high household debt. Debt at the time had reached a peak of $12.68 trillion towards the end of 2008. This debt situation is familiar now as the pre-crisis peak is being reached yet again, with borrowing at $12.58 trillion. However, the debt this time around is a lot different that what it was back in 2008 when the vast majority was mortgage debt from over-leveraged homes. Down 7.4 points from the last financial crisis, mortgages only account for 71 percent of the current debt.

While that is certainly an optimistic view of the situation, some economists believe that, in the long term, the economy can be at risk due to student loan debts totaling $1.3 trillion. The interest rates on student loans have increased by more than five times their original rate in a relatively short 14 years. For scale, the average student graduates with over $34,000 in student loan debt. That figure alone is already about 70 percent higher than the average a short 10 years ago. Take that into account with the five percent of borrowers who currently hold over $100,000 in debt and it can be a recipe for difficulty.

These issues leave the latest generation in a difficult position when it comes to being able to afford a home. It should also be noted that the increase in home inequality goes hand in hand with the income inequality. Statistics show that the amount of children who make more money than their parents has dropped drastically.

The rising costs of education also plays a part in the debt situation as students from low-income backgrounds often have to borrow a higher amount of money to be able to get their degrees. This pushes the prospect of being able to afford a home back even further. College attendance is often associated with a higher amount of wealth and a higher rate of home ownership. Other variables affect this association. For example, those who borrow money for college and graduate with an associate’s degree are part of a small 30 percent who own a home by age 33. On the other hand, those who borrow no money and graduate with a bachelor’s degree have a higher rate of home ownership by age 33. The amount of debt can directly affect whether or not someone has a home.

It’s an extremely tight situation – and this isn’t even taking into account the graduate who will default on their student loans. The median score for 30-year-old borrowers who had graduated or left school in a recent five-year period is 549. This score is often deemed high risk and could make home loans much more expensive.


Living with insurmountable debt can be extremely difficult, but there are options. If you or someone who know is currently struggling with very high debt and considering filing for bankruptcy, contact a bankruptcy attorney who could help. Contact the law offices of Joel R. Spivack to schedule your case consultation by calling 856-488-1200 or contact online.

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Attorney Joel R. Spivack is an experienced bankruptcy and residential real estate transactions lawyer in Cherry Hill, New Jersey. Clients come to us for legal services, but what we really provide is peace of mind. For more than 30 years, Attorney Spivack has helped people make wise, informed decisions about bankruptcy filings, debt relief options and residential real estate transactions.
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