Is the student debt bubble about to burst?
Something’s definitely going on with student tuition in North America. It’s not just Quebec students fighting for affordable university education, it’s young Americans getting stuck with high debt. Taking on debt to pay for higher education used to be considered as an investment, but in a slow economy, the chances of being able to pay it back are dwindling. Sounds familiar? This New York Times article compares the student debt bubble to the mortgage crisis.
The current balance of federal student loans nationwide is $902 billion, with an additional $140 billion or so in private student loans.
“If one is not thinking about where this is headed over the next two or three years, you are just completely missing the warning signs,” said Rajeev V. Date, deputy director of the Consumer Financial Protection Bureau, the federal watchdog created after the financial crisis.
Mr. Date likened excessive student borrowing to risky mortgages. And as with the housing bubble before the economic collapse, the extraordinary growth in student loans has caught many by surprise. But its roots are in fact deep, and the cast of contributing characters — including college marketing officers, state lawmakers wielding a budget ax and wide-eyed students and families — has been enabled by a basic economic dynamic: an insatiable demand for a college education, at almost any price, and plenty of easy-to-secure loans, primarily from the federal government.
Of course, the potential effects of seeing the bubble burst are not as high, but creating a generation of debt-ridden youth will not help the economy recover.