Student Loan Bubble College Debt Bubble Studen Borrowers Past Due 2012

The looming student loan bubble – Almost half of all student borrowers were not making payments. 1 out of 4 in debt repayment past due on student debt.

The aggressive growth in student debt is setting the country up for another debt fueled bubble.  Higher education costs have expanded so quickly that Americans now carry $1 trillion of student debt.  Most of this expansion has occurred in a time when the return-on-investment for a college degree has fallen.  Over the last ten years student debt outstanding has grown from less than $300 billion in 2002 to $1 trillion in 2012.  The cracks in the student loan bubble are already forming with large numbers of students defaulting on their loans.  And the pipeline is only increasing.  Almost half of all student borrowers are not making payments.  Many are in school and many are simply unable to pay.  Yet with a weak economy the prospect increases that many younger Americans are going to enter a market where job growth is weak yet student debt payments are high.

The massive growth of student loans and tuition

The issue is that college tuition even at public universities has far outpaced the growth of the overall CPI.  College earnings for recent graduates, those who left school in the last decade, has been marginal since many younger Americans are carrying a big load of this recession:

Student Loans vs Tuition

Source:  Sober Look, Barclays Capital

Higher debts and lower wages.  The risks do run high because many younger Americans are now going to college at far greater rates:

College Enrollment

Before saying how great this is think of the millions enrolled in for-profit paper mills that are basically giving you a piece of paper for tens of thousands of dollars.  The risks are getting large and larger.  The debt explosion has far outpaced the growth rates of any industry including the insane housing market.  Even in a decade where US households went debt crazy, student debt growth went on a separate and even more insane path:

Student Loan Growth

A large part of the growth has happened in the last decade when many young Americans are opting to go to college.  Yet are they doing this modestly with degrees that have some value in the marketplace?  College of course goes beyond the degree you get and many argue there is a signaling impact as well.  Yet the market is speaking otherwise.  And with college costs at many private 4-years institutions at $50,000 a year you better ask what the return of your degree is going to be.  Much of the debt is being taken on by the young:

Past Due Balance By Age

Of the $85 billion in past due student debt, over 66 percent comes from those 39 and younger.  Some of the more troubling aspects:

“(SoberLook) Barclays Capital: – The Federal Reserve, with the help of Equifax, created an extensive data set providing a snapshot of student debt in Q3 2011 that was released in March 2012. According to this study, 14% of all borrowers had past-due balances, and 27% of those who had entered the repayment cycle had past-due balances. Almost half of all student borrowers were not making payments; 47% were either still in school or in deferral, forbearance, or grace periods as of Q3 2011. This means that a significant number of borrowers who are not currently in repayment are set to enter the payment cycle in the next few years. Given the weak labor market and increasing dropout rates, there is little reason to think that their delinquency rates will lower the current national average.”

Just another bubble gearing up to burst in the debt machine we know as our higher education system.

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