Surprise Mr. Economy! There is a another bubble out there ready to pop. The higher education student loan system is a bubble waiting to burst.
This bubble if not addressed could harm the economy along with thousands of households.
Causes for the Student Loan Bubble
This is a complex issue and when it pops and the dust settles, more causes will come to light. Here are a few that we can see now:
- Rising Education Costs- Education costs rise year over year and student loan debt is inching towards $120 billion according to The Economist.
- Government Loan Subsidizes Education The U.S. government has been artificially keeping the interest rates lower, but they are soon to return to 6.8% this summer.
- Young (fiscally) Uneducated Students taking out loans. If someone offers you money when you are 18 you’ll say “yes”, without understanding the future economic implications.
- Parents taking on college loans or cosigning for their children out of guilt or a sense of responsibility, without means to repay or robbing from their retirement.
- Bankruptcy Protection- Federally backed student loans are to be paid back systematically until paid in full or until death.
- Belief that college is a right and not a privilege. There seems to be a growing belief that society should pay for everyone to have a college degree. The Student Loan Forgiveness Act of 2012 (H.R. 4170) seems to go along with this line of thought.
- Students attending college with no clear plan or future employment in sight. College isn’t for everyone, nor is it needed for every profession. The college major you choose will have major direct implications on your first career.
Can a Bubble be Deflated Instead of Popping?
We all recognize that the higher education system (along with the primary and secondary systems) in the U.S. aren’t perfect and need improving.
Can an economic bubble like the student loan bubble be deflated instead of popping? Possibly, but it seems the answer is for the individual to take on more responsibility.
With the housing crisis of 2008, a major result was an increase in dollar amount of down payments. Putting 20% down is now the new normal with the individual taking on more risk and the banks taking less.
The student loan bubble could turn into the student loan crisis if both individual families and educational institutions don’t start acting fast.
True, the government can ease some pressure, but ultimately it is the individual who decides to take on the responsibility of debt in the form of a student loan.
What are your thoughts about the Student Loan “Bubble”? How does it affect you?
Photo Credit Juha Riissanen (Creative Commons)