Recent debates over the validity of a student loan bubble for U.S. college students have again come to the forefront as President Barak Obama and other politicians submitted legislation aimed to lower payments on debt for students. After surpassing $1 trillion in 2012 for total student loan debt, discussions over the extent of this issue have become hot topics. Politicians are attempting to appeal to the young, college-aged demographic as the next presidential race begins.
The Consumer Financial Protection Bureau in particular fanned the flames of recession fears by warning of “uncanny similarities between the state of the student loan industry and that of the subprime mortgage market before the housing bubble burst.” Following this unsettling development, the assistant director of the organization, Rohit Chopra, went so far as to testify before Congress that the current student loan debt will have “repercussions that threaten the economic security of young Americans and broader economic growth.”
Generally speaking, the nature of this problem comes down to the concern that the rising amount of debt to finance higher education will create a bubble (an economic term for rapid growth followed by a subsequent collapse). This bubble will lead to another recession due to its size and complexity, according to Joseph Lawler of The Washington Examiner. Additionally, he cites slowing growth in the long run by “preventing young people from financing other major life goals” such as “buying homes or starting families.” Restricting the wealth of such a large number of people, especially those who are in a position similar to college students, can easily result in a domino effect with repercussions felt across the entire economy
Despite the sound and basic reasoning behind the fears of a potential loan crisis, new opinions are forming on the looming threat that can potentially change the entire perception of the issue. Lawler in particular agrees that current fears are warranted but somewhat misguided in practice. He believes that the real threat is not necessarily students taking on debt, but more specifically those who drop out of school and end up with “loans to pay for a degree that they never obtain and face the burden of repayment without the earning power of a diploma.” While this theory overall seems to be reasonable enough, only time will tell if the feared student loan bubble will come to fruition or end up being less disastrous than expected. In any case, University students should be aware of the potential crisis in the near future and prepare accordingly.
April 17, 2015