Is the Student Loan Bubble About to Burst?

Eric Blair
Activist Post

In February of this year, the S&P warned that student loans may be the next bubble to burst in US economy. Moody’s also issued a similar warning in 2011.

With the interest on student loans set to double on July 1st, will it pop the student loan bubble, or is it the necessary medicine to slow down the growth of the bubble?

It seems we won’t have that debate because politicians in Washington, including both Obama and Romney, agree that raising the interest on student loans will be an “enormous burden that threatens the economic recovery.”  In other words, keep the bubble going to win middle-class votes and avoid any pain.

In either case, students are already suffering from having to paying back massive principal balances because the cost of attending college has increased 439 percent from 1982 to 2007, and even more since then. Meanwhile, during that same period, median family income only rose 147 percent.

If those numbers weren’t ugly enough, CNBC reports that the total student loan debt in the U.S. is $870 billion, surpassing credit card debt, with two-thirds of it being owed by citizens under 30 years old. What’s more, this interest-rate increase comes just when it was reported that over half (53%) of recent college graduates are unemployed or underemployed.

All of these numbers seem to ensure that all recent grads face a lifetime of debt servitude, especially since student loans cannot be canceled in bankruptcy.

Through no fault of their own, students have been lulled into believing that they must attend college to be successful.  This myth is the engine of the college bubble, while cheap, easy, low-interest money from the government has been the fuel that has caused the cost to soar far beyond the rate of inflation.

An increase in interest payments would be even more catastrophic for already over-burdened college graduates. Yet, unfortunately, it may be just what is needed to slow down the growth of the bubble and save a few young people from the prison of debt.  As such, it is just one more of the many reasons not to attend college.

Read more articles by Eric Blair here.