The student loan debt bubble continues to fester.
While we have become numb to large numbers with all the trillions thrown around the world the past few years, when you take a step back and really think about the amount of debt incurred for higher education in this country, it is a bit staggering. Per this USA Today story, last year was the first time the country passed the $100B threshold in any one year (that run rate has DOUBLED in a decade), and the total will cross over $1T this year. As reported a few months ago, student loan debt has now surpassed credit card debt in the country. Like all good bubbles, this one will end badly but will be spread out over many years. In the meantime a lot of for profits, and public universities are generating 'mad money'.
As for newly minted graduates? A lot of money is being spent for little reward in this economy. [May 20, 2011: Nearly 50% of 2009 College Graduates are Either Jobless, or Working in Jobs that Don't Require a College Degree]
- Students and workers seeking retraining are borrowing extraordinary amounts of money through federal loan programs, potentially putting a huge burden on the backs of young people looking for jobs and trying to start careers.
- The amount of student loans taken out last year crossed the $100 billion mark for the first time and total loans outstanding will exceed $1 trillion for the first time this year. Americans now owe more on student loans than on credit cards, reports the Federal Reserve Bank of New York.
- Students are borrowing twice what they did a decade ago after adjusting for inflation, the College Board reports. Total outstanding debt has doubled in the past five years — a sharp contrast to consumers reducing what's owed on home loans and credit cards.
- The credit risk falls on young people who will start adult life deeper in debt, a burden that could place a drag on the economy in the future. Students who borrow too much end up delaying life-cycle events such as buying a car, buying a home, getting married (and) having children, says Mark Kantrowitz, publisher of FinAid.org.
- It's going to create a generation of wage slavery, says Nick Pardini, a Villanova University graduate student in finance who has warned on a blog for investors that student loans are the next credit bubble — with borrowers, rather than lenders, as the losers.
- •Defaults. The portion of borrowers in default — more than nine months behind on payments — rose from 6.7% in 2007 to 8.8% in 2009, according to the most recent federal data.
- •For profit-schools. The highest default rates are at for-profit schools that tend to serve lower-income students and offer courses online. The University of Phoenix, the nation's largest, got 88% of its revenue from federal programs last year, most of it from student loans.