Washington, DC, United States (AHN) – A rising number of college graduates are filing for bankruptcy protection, says a study by the Institute for Financial Literacy scheduled for release on Tuesday.
In 2006, degree holders accounted for 11.2 percent of bankruptcy protection filers, the study found. By 2010, their proportion rose to 13.6 percent.
Similar trends were observed for holders of two-year associate degrees and graduate degrees. On the other end, high school diploma holders or college dropouts logged a decline in bankruptcy protection applications.
Leslie Linfield, executive director of the Institute, said the new trends challenged beliefs that an advanced education is almost a guarantee for economic success. Linfield said the recession indicated otherwise.
Bankruptcies in the U.S. dramatically rose after the 2008 financial crisis due to less consumer credit available after lenders tightened underwriting benchmarks and lowered loan limits.
Data from the Department of Education released on Monday showed that before students leave university some of them are defaulting on their student loans. For the fiscal year that ended on Sept 30, 2010, student loan defaults went up to 8.8 percent from 7 percent the previous year.
Financial difficulties faced by new graduates and students that led to the loan defaults were particularly felt among those enrolled at for-profit colleges and universities where the default rate in the first two years of payment zoomed to 15 percent from 11.6 percent.
For students enrolled in public educational institutions, the default rate climbed to 7.2 percent from 6 percent. At not-for-profit private institutions, the rate was 4.6 percent, up from 4 percent.
Deputy Education Secretary James Kvaal said there is a strong link between student default rates and joblessness rates..
The data supports an Institute for higher Education Policy study that found that for every borrower who defaults, there are two more who are behind in payments. Only 37 percent of borrowers who began to repay their student loans in 2005 managed to pay their loan fully and on time.
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