Tuesday, April 19, 2016

Pop Goes the Higher Education/Student Loan Bubble

Over four years ago, I wrote a post about the "Higher-Education Bubble" and how the growth in tuition costs were unsustainable.


Back then, student loans had just surpassed all other forms of debt.

Now, WSJ is reporting that over 40% of Americans are late or not making payments on their loans.
More than 40% of Americans who borrowed from the government’s main student-loan program aren’t making payments or are behind on more than $200 billion owed, raising worries that millions of them may never repay. 
The new figures represent the fallout of a decadelong borrowing boom as record numbers of students enrolled in trade schools, universities and graduate schools. 
While most have since left school and joined the workforce, 43% of the roughly 22 million Americans with federal student loans weren’t making payments as of Jan. 1, according to a quarterly snapshot of the Education Department’s $1.2 trillion student-loan portfolio. 
About 1 in 6 borrowers, or 3.6 million, were in default on $56 billion in student debt, meaning they had gone at least a year without making a payment. Three million more owing roughly $66 billion were at least a month behind.  
Meantime, another three million owing almost $110 billion were in “forbearance” or “deferment,” meaning they had received permission to temporarily halt payments due to a financial emergency, such as unemployment. The figures exclude borrowers still in school and those with government-guaranteed private loans.

This should be frightening, not only to those in danger of permanent financial damage, but to all Americans. Unlike the housing bubble, which fell on private companies (then the federal government to bail them out), student loans are primarily government backed. So when that bubble bursts, there is no buffer to shield the government's own finances.

The cause of this bubble and potential solutions to fix it are too numerous to outline on a single post, but hopefully these warnings don't go unheeded and Americans start to understand the cost/benefits of higher education and pare back their student loan borrowings.

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