There's no doubt that we're all still a little sensitive when it comes to the economy. Although it's been nearly four years since the start of, what we now call, The Great Recession, the world still hasn't let down its guard. The new warning making its way through the financial media is the rising student loan burden. Some believe that this could bring down the economy in much the same way as the 2008 and 2009 mortgage crisis, but is that true? (For related reading, see Student Loan Debt: Is Consolidation The Answer?)
For generations, young people have heard that the only path to success is through a college education. College remains the accepted path for 68.1% of high school graduates, according to the Bureau of Labor Statistics. For most students today, student loans are the way to pay the expenses of a higher education. The average student loan debt for a college student in 2010 was $25,250, up 5% from the previous year, according to a study by the Project on Student Debt. For the first time in history, total student-loan borrowing for one year surpassed the $100 billion mark in 2010, making the total outstanding debt more than $1 Trillion.
Some believe that the problem will continue to get worse. Over the past 50 years, the rate of college tuition inflation has ranged from about 6 to 9% annually, sometimes twice the normal rate of inflation. With college becoming more financially out of reach and the economy largely failing to put all of the college graduates to work, experts believe that more and more people will be unable to pay these loans. (For additional reading, see Keeping Your Student Loans In Check.)
The problem doesn't stop there. Current laws don't allow student loan debt to be written off by bankruptcy proceedings, regardless of how bad a person's financial situation becomes, so graduates who are bankrupt will likely continue to pay on their student loan debt. Some students with more than $100,000 in debt may pay the equivalent of house payment each month for sometimes more than twenty years.
Economists fear that as this problem continues to grow, traditional purchases like homes and other economy-stimulating activities could be largely stifled, impacting the growth of an already fragile economy.
This problem is much more than a theory. A recent survey found that around 50% of bankruptcy attorneys reported significant increases in clients who list student loan obligations as a significant financial burden. Another survey of the class of 2005 found that one out of every four became temporarily delinquent or haven't paid for a significant period of time.
Bankruptcy attorneys believe that the only way to fix the problem is to allow for student loan debt to be discharged in the same way as credit card or other debt through bankruptcy proceedings. Some believe that this would be just another taxpayer bailout of the student loan industry but since a large portion of debt is through government agencies, much of the debt is already held by taxpayers. Others believe that college tuition inflation needs to be brought under control, but there is little hope for that in the near future.
The Bottom Line
There's no doubt that the student loan system is in desperate need of reform but comparing it to the mortgage crisis may be inaccurate. Although the total amount of outstanding student loans now stands at about $1 trillion, that number is small compared to the roughly $13.5 trillion in outstanding mortgage debt. (To learn more, read Student Loans: Paying Off Your Debt Faster.)
What is the future of banking, central banking and financial intermediation in a world in which cryptocurrency is dominant? Let’s speculate a bit...
Trading on the FOREX market is exciting, but what makes it so exciting is what simultaneously makes it risky - volatility. Certain trading strategies...
The digital currency Bitcoin has a dedicated following, regularly makes headlines and inspires countless investors to consider making...
Questions about the value of bitcoins as an investment will likely differ depending on who you ask. Those with a vision of a fully-distributed future...
In 1913 the USA government passed a law, according to which...
A list of professional terms of any sphere is the main instrument for users. Special words help to avoid misunderstanding while working process. They economize time and make life much easier...
Profit is what all traders aim at while working on the stock market. They use a variety of helpers to reach the goal. The most profitable trades are built on thorough analysis made by means of special programs...
Forex gives so many possibilities: a trader can work with shares, commodities, currencies and so on. There is a great diversity in every category, and a trader can choose one or several what he likes the most...
In the era of high technologies and financial prosperity...