Sobering Statistics on Student Loans

According to this WSJ article, the student loan debt picture for current students is going from bad to worse.

The article explains that graduates in the class of 2011 are expected to have much higher student loan default rates than previous students on account of current predictions concerning job prospects and earning potential.

From the article:

Historically, investors have assumed 25% to 30% of student loans bundled into their bonds will default. But today they are baking in between 30% and 40% default rates among the current crop of graduates, said Chris Haid, a director in asset backed trading at Barclays Capital. Even those assumptions are a best guess and defaults could ultimately go higher if unemployment rises, Mr. Haid said.

This analysis translates into some surprising insights for students and policy makers. For example, in the current economy, it may make more sense to enter a technical college than to go to law school.

It should be noted that unlike other unsecured debt, student loans are generally not dischargeable in Bankruptcy proceedings per 11 USC § 523(a)(8) & § 1328. The exception to this rule is when a debtor can prove that the loans impose an "undue hardship." If the assumptions made in the article prove to be correct then between 30% and 40% of 2010-2011 graduates with loans will eventually default on those loans and not be able to discharge them in bankruptcy like other debts.