Wednesday, July 18, 2012


The housing bubble that burst in 2008 has taken four years to recover.  Prices of homes that are selling are finally starting to rise again in most states.  Although that financial disaster has taken a turn for the better there is another storm that is moving in from the distance and that is student loan debt.  Student loan debt is sitting at $1 TRILLION dollars currently and with defaults at an all time high it is the next bubble that is ready to burst!  Just like the housing bubble not many people are paying attention to the warning signs and many don’t understand how dangerous the economy will get if this bubble burst.  Everyone will be affected if this bubble pops in fact no one will escape the aftermath.

First the borrowers who are not able to pay the current loans they have don’t have the luxury of filing bankruptcy like the homeowners did during the housing crisis.  These borrowers are going to get sued and their wages are going to be garnished making real life even more challenging.  Student loans never go away in fact they will take social security checks and tax refunds to pay off these loans.  Next the banks that lend the money to students are in the same predicament they were in with the housing bubble because a non paying student is the same as a non paying homeowner.  The banks are in the position again to be over leveraging themselves and putting their customers (account holders) in possible financial danger if these defaults continue to rise.  The $1 Trillion student loan debt is more than car loans and credit card debt combined so it presents a problem for these lending institutions.

Lastly, the universities are going to be hurt by this bubble and the sad part about it is that the universities think that if the bubble bursts they won’t be impacted.  The students who are borrowing money are getting federal loans which come from the government so what happens when those loans start to default?  The government takes a hit and stops putting out as many loans and grants for students to take advantage of for attending college.  As a result of this action on the part of the government universities have to find ways to make up the lost of those funds and also risk losing out on a potential Einstein because that Einstein can’t afford the high tuition.  As you can see a storm is upon us and we can hear the thunder, but are we going to let it reach us and we have no umbrella like the housing bubble or are we going to get inside and protect ourselves by doing our part to eliminate this debt.  You have been warned.

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