Is There a Student Loan Bubble?
For many college students, educational loans are an unavoidable side effect of attending institutions of higher learning. As the tuition at colleges and universities across the country continue to rise, the total amount of student loans in the U.S. has ballooned as well. According to the College Board, overall borrowing for school has more than doubled from $41 billion to about $85 billion in the ten years leading up to the 2007-2008 academic year. Moreover, a recent article published by the Wall Street Journal states that the percentage of private loans has more than tripled from 7% to around 23% in the same time period. Adding to these already massive student loan figures, the U.S. Department of Education established an initiative in late 2008 to repurchase up to $6.5 billion of student loans in order to further bolster access to student loans. With all the easy borrowing and prolific lending, does the U.S. have a student loan bubble?
While university officials and student lending organizations may argue that the sheer monetary value of a college degree precludes any debate about such a bubble taking place, the nascent signs of trouble in the student loan market suggest otherwise. There has been growing concern that default rates on student loans will rise, as did those in the mortgage market in the housing bubble. To illustrate, the same Wall Street Journal article reports that the private student lender Sallie Mae saw its delinquency rate rise by 0.9% - from 8.5% to 9.4% - within one year. Sensing potential trouble, some financial institutions have decided to halt their student loan business altogether. In April 2008, for example, Bank of America announced that it was leaving the educational private loan market.
Although these facts are disconcerting, it may still be too early to tell whether the student loan market is truly in a bubble. The current default rates on student loans, for instance, are still much lower than those reached in the 1980s, when the student loan default rates peaked at about 30%. At the time, those skyrocketing rates prompted state and federal governments to resort to such drastic measures as passing legislation and recruiting the help of collections agencies to exact payments from delinquent borrowers. The U.S. Department of Education targeted the other side of the lending table by prohibiting institutions with high default rates from taking part in federal financial aid programs. Having learned from their past experiences, both government and private lenders are negotiating loan terms with borrowers to try to prevent the default rates from rising this time around.
To read one Huffington Post blogger’s reaction to the student loan bubble, click here. Photo courtesy of Wikimedia.
@ 11:03 am alen said:
The apprehension that there is a student loan bubble is not unfounded in view of the number of defaulters and easy availability of student loan. Hence, before it ripens into a crisis, it is high time to devise a safety measure. it is a nice post. internet marketing product reviews
@ 4:42 pm saloni said:
In view of all the easy borrowing and prolific lending in the U.S., it is obvious to be apprehensive that a student loan bubble may be in the making. I've enjoyed reading the discussion. Thanks for the information. junkyard
@ 2:43 pm selina said:
It is a pertinent discussion in view of the many fold increase in the student loan for education purposes. The arguments sound good in accordance with the trend in this sector. In order to avoid any crisis in the future, we should listen to the experts and do the needful. It is a nice post. Houston web design
@ 11:28 am mike said:
To keep the loan in good standing, a loan needs to be credit worthy and viable. If the number of defaults keep rising the program would run into rough shod. In order to make the program success, a proper study needs to be conducted. thanks.
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@ 8:23 pm zhangsan said:
At what point did you consider that bringing a child into your situation would be unhealthybadminton racket,crystal vase,candle holders for the child? Kids are expensive and basic needs such as food, shelther, and safety need to be met. And what thecrystal ornaments,crystal figurines,hair accessoriesheck were you doing shopping at Whole Foods during that time?! Are you kidding? My husband and I both have full time jobs and there is padlock,bottle jack,floor jack,hydraulic jackcertainly no room in our budget to be shopping there. And you found time to go to a mother's group but not to look for a job?
@ 9:45 am dimon12 said:
Since the education in US is pretty expensive this bubble is something that everyone can expect and there is very little to do to prevent it. You can't expect someone who didn't get scolarship to give up on education if he wants to make something out of himself.
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