College graduates and Americans with advanced degrees are filing bankruptcy more often, according to a report published today by the Institute for Financial Literacy. But even though bankruptcy filings by degreed persons increased 20 percent since the passage of the Bankruptcy Abuse Prevention and Protection Act, non-degreed filers still make up 70 percent of bankruptcy cases. Here's the snapshot provided by the Institute:
• The following changes have occurred since the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA):
o The Gender Gap in bankruptcy filings is closing;
o Over 70% of debtors didn't graduate from college;
o Americans with advance degrees are filing at higher rates;
o The majority of bankruptcy filers earn $40,000 a year or less;
o Americans who are unemployed saw a jump in filings by 23% since 2008; and
o Americans who are married are more likely to file and represent over 60% of all filings and of those filings, nearly 35% were joint petitions.
• The following changes have occurred during the previous five year period and may be attributable to the Great Recession:
o Americans 45 years and older increased the rate of filing bankruptcy by 19%;
o Americans age 34 and younger decreased the rate of filing bankruptcy by over 30% since 2006;
o Asian American filings have doubled while Hispanics/Latinos filings increased by over 33%;
o College education doesn't appear to ward off bankruptcy as the rate of degree holders filing bankruptcy increased by 20%;
o Bankruptcy filers earning incomes above $60,000 increased their rate of filing by over 66%;
o Americans who are unemployed increased filings by 21% since 2006; and
o Americans who are married have seen a 12% increase in filings since 2006.
• The percentage of Americans reporting Reduction of Income and/or Job Loss as a cause of financial distress increased by 24% and 21% respectively since 2006.
• The other common causes of financial distress reported by Americans include Overextended on Credit, Unexpected Expenses, Illness/Injury and Divorce.
Notice that bankruptcy filings are down 30 percent among people 34 and younger. That demo includes recent college graduates, not a single one of whom can get rid of student loans by filing for bankruptcy, because that debt is nondischargeable. The cold hard (rent sought) realities of paying for education, coupled with tighter lines of credit for youngsters, is hopefully teaching millennials how to live within their means; something their married and divorcing parents (couples represent 60 percent of all filings) are less good at.
A thought experiment: Imagine if student loan debt were dischargeable, and families had to put up collateral to borrow big bucks to put junior through college. For a while we'd probably have even more brokeass boomers, but eventually we'd also get some cheaper colleges.