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Rising Dollar Amount of Student Loans May Signal Higher-Ed Bubble

Posted on July 10, 2017 in Education Higher Ed. Higher Education Public Education Student Loan Debt

Experts have been warning for some time over the rapidly inflating amount of outstanding student loan debt. Student loan debt now stands at close to 10 percent of the gross national product of the United States. While that, in itself, may not be hugely worrying, there are other aspects of the phenomenal growth in student loan debt that are.

 

 

Student debts have nearly doubled since 2008

 

Since 2008, the number of outstanding student loan debts has nearly doubled. This phenomenal growth would be bad enough on its own. But it has not been accompanied by anything like a commensurate increase in the value of a typical college degree. In fact, in today’s difficult job market, most college graduates aren’t even being hired in a degree-appropriate job, in their first year out of college. This points to an ever widening gap between the cost of higher education and the value that education produces.

 

Another problem with the rapidly expanding student debt load of the nation is that the lending standards to students are lax, by definition. As with the notorious ninja loans, which played a large part in the housing crash that nearly sunk the global economy in 2008, students likewise have no income, no job and no assets, the set of criteria which formed the ninja acronym. Already, student loan debt ranks number one for payments in some stage of default. Since these loans are guaranteed by the government, this means taxpayers will be on the hook for all loan debt that ultimately defaults.

 

But this easy access to credit for those who probably wouldn’t qualify for a credit card is causing another problem. It’s driving up the price of college. What’s worse, administrators, tenured professors and the bankers who underwrite the loans have great incentive to keep the show on the road, no matter what the cost to students or taxpayers.

 

This combination of misaligned interests, rapidly declining real value and rapidly expanding prices has all the hallmarks of a bubble.