The student loan bubble is more dangerous and far-reaching than even the subprime mortgage fiasco. The origins of each have much in common:
Bottomless credit equals inflated prices equals more money for colleges and universities, more hidden taxes for the government to collect and, perhaps most important, a bigger and more dangerous debt bomb on the backs of the adult working population.
The stats on the latter are now undeniable. Having passed credit cards to became the largest pile of owed money in America outside of the real-estate market, outstanding student debt topped $1 trillion by the end of 2011. Last November, the New York Fed reported an amazing statistic: During just the third quarter of 2012, non-real-estate household debt rose nationally by 2.3 percent, or a staggering $62 billion. And an equally staggering $42 billion of that was student-loan debt.
The exploding-debt scenario is such a conspicuous problem that the Federal Advisory Council – a group of bankers who advise the Federal Reserve Board of Governors – has compared it to the mortgage crash, warning that “recent growth in student-loan debt . . . has parallels to the housing crisis.” Agreeing with activists like Collinge, it cited a “significant growth of subsidized lending” as a major factor in the student-debt mess.
One final, eerie similarity to the mortgage crisis is that while analysts on both the left and the right agree that the ballooning student-debt mess can be blamed on too much easy credit, there is sharp disagreement about the reason for the existence of that easy credit…
This Rolling Stone article by Matt Taibbi is a must read if we are to understand and solve the still billowing student debt debacle. All of us young and old, have a vested interest in solving this economic plague that is handicapping the engines of our future: self-supporting, solvent, workers who can pay taxes, support necessary infrastructure and buy assets off an aging population. See: Ripping off young America–The College-Loan Scandal