Will Student Loans Be the Next Bubble to Burst?

First the dot.coms popped, then mortgages. Are student loans and higher education the next bubble, the latest investment craze inflating on borrowed money and misplaced faith it can never go bad?Some experts have raised the possibility.

Last summer, Moody’s Analytics pronounced fears of an education spending bubble “not without merit.” Last spring, investor and PayPal founder Peter Thiel called attention to his claims of an education bubble by awarding two dozen young entrepreneurs $100,000 each NOT to attend college.

Recent weeks have seen another spate of “bubble” headlines — student loan defaults up, tuition rising another 8.3 percent this year and finally, out Thursday, a new report estimating that average student debt for borrowers from the college class of 2010 has passed $25,000.And all that on top of a multi-year slump in the job-market for new college graduates.So do those who warn of a bubble have a case?

The hard part, of course, is that a bubble is never apparent until it bursts. But the short answer is this: There are worrisome trends. A degree is an asset whose value can change over time. Borrowing to pay for it is risky, and borrowing is way up. The stakes are high. You can usually walk away from a house. Not so a student loan, which can’t even be discharged in bankruptcy.

But there are also important differences between a potential “student loan bubble” and an “education bubble.” Furthermore, many economists think the whole concept of a bubble is a misleading way to think about what’s happening, and may actually distract from the real problems. College affordability is a serious issue, but it’s a different one. Borrowing for college and borrowing for, say, a house, are fundamentally different in important ways.

Read the full article via Will Student Loans Be the Next Bubble to Burst?.

 
This entry was posted in Debt Relief. Bookmark the permalink. Follow any comments here with the RSS feed for this post. Both comments and trackbacks are currently closed.
  • LH&M is considered a debt relief agency.
    LH&M helps people file for bankruptcy relief under the Bankruptcy Code.

    Attorney advertisement. Prior results do not guarantee a similar outcome.