Is the Near-Trillion-Dollar Student Loan Bubble About to Pop?
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All of these factors have combined to send student loan debt into the stratosphere. Daniel Indiviglio at the Atlantic pointed out, too, that student debt has far outpaced the growth of all other household debt over the past 10 years—including increasing twice as fast as housing debt. He argued:
“This wasn't just any average period in history for household debt. This period included the inflation of a housing bubble so gigantic that it caused the financial sector to collapse and led to the worst recession since the Great Depression. But that other debt growth? It's dwarfed by student loan growth.”
RJ Eskow at the Smirking Chimp noted that the same banks that broke the economy by creating that housing bubble are responsible for the student debt crisis—as well as the federal government, which issues student loans. “[T]hese debts were incurred with broken promises. Much of that money is owed to the government itself, and billions are owed to the banks we bailed out at taxpayer expense,” he wrote.
Student loans are not really comparable to housing loans, though: if you default on your student loans, there's nothing to repossess. Instead, you'll face a drop in your credit rating, and constant pressure from the types of collection agencies that Williams and Sternwood discussed above. They can garnish your wages, as Williams explained, and even if you declare bankruptcy, your student loans don't go away. And as Hindman noted, miss a payment, and your interest rate goes up, creating a punitive spiral of debt there's no way to escape from.
Even if mass default isn't likely to happen the same way mortgage defaults did, Indiviglio wrote that the cost of college and debt is already slowing the economy. “As Americans grapple with high student loan payments for the first few decades of their adult lives, they'll have less money to spend and invest,” he wrote, pointing out that all the money going into colleges and the pockets of lenders in the form of interest is being funneled away from other places it could be spent. “Of course, this would be a rather unfortunate irony: higher education is supposed to enhance a nation's growth, but with such an enormous debt burden, graduates might not be able to spend and invest enough to allow that growth to occur.”
Iris Van Kerckhove, who blogs about business at On My Grind, wrote:
“Now the labor pool is flooded with people who have postgraduate degrees and are desperate for work. Employers are overwhelmed with the number of applicants and, in response, demand higher qualifications as a way to filter the applications. Yet higher education institutions continue selling something that doesn't exist-- a guarantee of a better future. Something's gotta give.”
So what can give?
Mychal Smith reminded us that just last year in his State of the Union, President Obama proclaimed, "No one should go broke because they chose to go to college.” He called for student loans to be forgiven after 20 years—10 for those who go into public service—and a $10,000 tax credit for families paying for a four-year college.
But that's not a solution for people like Parker, who was unable to finish school because of the cost, or Toney, who wanted to go into public service but saw that door shut in her face with state budget cuts. They're in debt now, not in 20 years, and $10,000 doesn't begin to cover their debt, let alone the $80,000 Williams owes for a graduate degree. As tuition goes up thousands of dollars a year, a $10,000 tax credit looks pretty measly—and the chances of getting even that through the current Congress are slim to none.