Student loan debt is the second largest amount of debt behind mortgages, according to the Fed. Over the past decade, the amount of student loan debt has almost doubled, along with the average balance of graduating college students. A recent article on CNBC covered the story of a 48-year old mother of two admitting to having around $600,000 in outstanding loans (of course, not uncommon, but alarming nonetheless).
According to the article,
"Benson and her ex-husband's student debt, which started at around $150,000 in the 1990s, has ballooned from interest and late fees".
Borrowing is unlikely to slow down and the cost of education is only rising. At the same time, the student loan default rate more than doubled between 2003 and 2011, according to Education Department data. Forty percent of student borrowers are expected to default on their loans by 2023, according to the Brookings Institute.
"Cost escalation, which would normally be met with consumer resistance, is being facilitated by the easy availability of credit," Nassirian said. "It's disturbingly similar to what happened to tank the mortgage market." "Predatory colleges target the same low-income populations that the subprime mortgage boom targeted by offering a similar promise of white picket fences and higher education as part of the American middle class dream".
On the other hand, others say the mechanisms behind student loan debt are dissimilar to what we saw during the housing crisis in 2007-2009. Unlike other forms of debt - notably mortgages and auto loans, the collateral that backs student loan debt is the borrower's future earnings. In addition to this, degrees cannot be bought or sold, there is no real "value" to the degree outside of whatever use the graduate can make of it.
Thoughts? Will the student loan bubble pop? And any advice on current loan payments in general is also welcome.