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Is Student Loan Debt Entering a Bubble Phase?

Posted on July 7, 2017 in Education Public Education Student Loan Debt

The rate at which student loan debt has been expanding in the United States over the last decade has been worrying. With current student loan debt spiraling to more than $1.3 trillion, there are serious questions about the sustainability of all of this debt and whether or not it is serving student and the economy as a whole well.

 

 

Debt service means less discretionary income

 

Today’s students are more indebted than at any time in the country’s history. Yet even with all of this additional debt, the ability of typical four-year college graduates to find suitable employment is at an all time low. The so-called economic recovery that has taken place since the housing crash of 2008 has largely been illusory for those in the bottom 75 percent of the wealth spectrum. For today’s college graduates, ending up working as a barista at Starbucks is just about as likely as being hired into a top-paying position that uses the skills gained from earning their degree.

 

But there is an even larger issue than simply finding a job. Student loan debt has surpassed all other forms of consumer credit, except mortgages, for the first time in history. More than 20 percent of all students today have over $50,000 in student loan debt. The interest payments alone on such large principal sums can easily exceed the nominal value of the loan. This means that, even if they find a great job, many of today’s graduates will have little to no discretionary income for the first decade or more of their working lives. In an economy that is based on consumer spending, that bodes quite poorly for the economies future prospects of growth.

 

Another looming crisis with student loan debts is that they have now surpassed all other forms of debt, including mortgages, in delinquency rates. Because they are guaranteed 100 percent by the government, that means that, ultimately, the taxpayers will be on the hook for any student loans that go permanently unserviced.