Are We Headed To A Student Loan Debt Bubble?

The economic struggles of the past five years have seen a housing bubble that might be followed by a student loan debt bubble, according to Standard & Poor's. “Student-loan debt has ballooned and may turn into a bubble,” S&P stated.  “There are more defaults and downgrades for some student loan asset-backed securities."

Mark Kantrowitz, publisher of FinAid.org, an educational loan and grant website, states that Federal and private student loan debt has surpassed credit card debt.  At just under $1 trillion, student loan debt presents a different angle in the asset backed loans problem of the recent few years.  The angle is the government has a large amount of money at stake, making it nearly impossible for creditors to have their student loan debt discharged through bankruptcy.

As an increasing number of people have suffered in some way through the economic downturn – either through job loss or life circumstances – the Obama administration is seeking ways to fix the growing problem that could, indeed, be as significant as the housing bubble that burst.  The same factors that caused the housing bubble are present in the student loan crisis.  With state aid being taken away from many colleges, funding has decreased, causing rising tuition costs.

 

Also, in previous years, practically anyone could get a student loan as part of government-backed encouragement for everyone to pursue higher education.  Not only were applicants given easy loan money – they were given money through the loan for living expenses, books, and whatever they wanted to spend the money on.  Applicants with un-established credit histories, or even poor credit histories, were given student loans at low rates, and now many of these applicants find themselves $50,000 - $200,000 in debt, despite increasing competition for jobs, especially among professionals.