Student Loan Bubble: Does it Exist?
As the recession lags on for what seems like eternity, the prospect of a student loan bubble is on the top of everyone’s minds.
This is especially the case with so many people unemployed.
If college graduates are leaving school to the same, weak job market, then why would college degrees make any sense?
If students are taking on more student loans but earning less, a student loan bubble might just be the only realistic outcome.
Remember, the Obama Administration did announce a student loan forgiveness program to deflate any bubble before it pops.
Student Loan Bubble: Why It Happened
There are a few reasons why student loans have become such a big issue. More importantly, there are a few well-understood phenomena that probably led to rising student loan balances:
- Societal pressures – First things first, almost every employer wants a potential employee to have a degree, regardless of the position. It is a proverbial race to the bottom in that more and more employers request a college degree to fill even positions with the least responsibility.
- Subsidies and easy money – American universities have little issue providing loans to students for their educations. A loan from the Federal government does not require the student to have any income today, nor any real income potential in the future. In the eyes of government lending, a student chasing a medical degree (which would bring employment and higher than average income) is no better candidate for loans than someone seeking a degree with little commercial value.
- Stagnant wages – This is the catch-22 of the entire student loan bubble. Wages stagnated over many decades, leading the middle classes to seek a college degree to beat falling wages. Meanwhile, falling wages in recession pushed incomes down while student debt loads rose. It’s safe to say that the average graduate will earn less relative to their student loan debt today than the same student even 5 years ago.
511% Growth in Student Loan Debt
TheAtlantic reports that student loan debt in the United States has grown 511% in only 12 years from 1999 to 2011. Meanwhile, the amount of household debt in other categories merely doubled. It’s bad enough to see that student loan debt is up 511%. To say that household debt “only” doubled is even worse.
Will the student loan bubble burst? It’s hard to believe it will.
As long as a new generation of students can continue to go to college, borrow nearly limitless amounts of money and spend themselves into oblivion, a new class of future student loan bubble enablers will send the amount of debt even higher. What’s to stop the high school class of 2012 from adding the next layer onto massive student loan debt?
Very little.
