I heard on the radio yesterday that a “Student Loan Crisis” is on the horizon. Are there really that many in default?
I don’t think federal law allows people to default on their insured student loans. So while people may fall behind, they can’t walk away. So in that sense, there aren’t many defaults. It is a huge debt load for the country though.
I hope someone comes in here with the definitive, factual answer fast so I can adjust my investment portfolio and make millions!
Within the past couple years the total amount of student loan debt that Americans are carrying has overtaken the total amount of credit card debt. I’m not sure if that makes it the number one source of debt (home loans might be bigger), but even bankruptcy won’t get you out of paying these loans back, so it’s a pretty big deal.
More generally, there’s a lot of discussion these days over whether there’s a bubble in higher education, but I’m not sure there’s much you can say about that from a purely factual standpoint. Probably the strongest statement you can make is that it’s not definitely the case that there’s not a bubble.
It may be a big problem, certainly to those with large debts, but if it can’t burst then I don’t see a bubble. Unlike a house, it is a lot harder to walk away from yourself…
That’s not exactly true. It is true that student loans cannot be forgiven through a bankruptcy. They can be forgiven if the loan holder becomes disabled and a very small number of other cases.
Sorry, I was really unclear there. The bubble talk has more to do with the price of tuition and the way it’s increased lately than student loans generally. Wikipedia has an article on the matter that seems like a good place to start.
Here is a recent article about the jump in student loan defaults in 2010-11. Note too that the reported default rate only encompasses defaults that occur in the first two years of payment, so the total rate of default may be higher.
It also has something to do with the stagnation of middle class income, which has not risen anywhere near as fast as the cost of education. So students not only have higher debt, but less prospect of a good enough paying job to pay that debt.
On an individual basis there are a lot of horrible stories circulating. For instance there was a story that went around the internet about a year ago about a young woman who graduated with a degree from NYU and about $100,000 in debt. She was working as a photographer’s assistant at the time and there was basically no way she could ever afford to pay back the loan. So she can expect a lifetime with significantly less money as result.
Here’s another twist. Baby boomers are expecting to sell off their houses and live off the proceeds in retirement. But, who are they going to sell the houses to? If a significant percentage of the 20 somethings have these big student loans, how are they going to take on a second mortgage?