The student loan debt bomb

Bill Bennett has an excellent column at CNN on the looming crisis of excess student debt:

Last week, the Federal Reserve Bank of New York reported that student loan debt increased to $956 billion, more than auto loan debt or credit card debt. More worrisome, the student loan 90-day delinquency rate increased to 11% this past quarter and for the first time exceeds the "serious delinquency" rate for credit card debt.

Student loan debt is reaching bubble-bursting levels. By comparison, in October 2007, the start of the subprime mortgage crisis, 16% of subprime mortgages were 90 days delinquent, according to Federal Reserve Chairman Ben Bernanke. By January 2008 it accelerated to 21%. If the economy heads off the fast-approaching fiscal cliff and tax rates spike for lower- and middle-class Americans, it may accelerate student loan defaults to crisis levels. The big banks got their taxpayer bailout; taxpayers may soon be on the hook for another.

Even if the markets manage to avoid another debt crisis, the mountain of student loan debt is already taking its toll on a weak economy.

September, Pew Research Center reported that a record one-in-five households owe student loan debt. The average student loan debt in 2011 was $23,300.

Unlike credit card debt or automobile loans, student loans are virtually impossible to liquidate, even after declaring bankruptcy. So 20- and 30-year-olds buried under student loan debt are forced to put off other purchases crucial to the health of the economy, like buying a car or home or investing in the markets. Many are moving back in with their parents and delaying marriage and starting a family, two of the most vital building blocks to a healthy and prosperous economy. Valuable human capital is withering before it can even set its roots.

There will be an effort in Congress perhaps this year to bailout student loan recipients in some way. There is no shortage of schemes but most involve a combination of forgiveness and lowering rates. There is no doubt that this debt is a drag on the economy, but that doesn't answer the question of why the bailout? I'm sorry but this is just rewarding irresponsibility. What werre these students thinking when they took out massive loans without even realizing the potential of being employed in a job that paid a decent enough salary where they could pay it back? Not much a call for art history majors to work in a skilled position.

Apparently, a sizable chunk of these loans are from for-profit schools that promise the moon and end up delivering little or nothing. But most of the loans are from 4-year schools where the students emerge ill-equipped to get a job in this economy.

As Bennett concludes:

But above all, American society at large must stop pushing the notion that everyone should, or deserves, to go to a four-year college. It took a recession and massive taxpayer bailout for Americans to realize that not everyone should, or deserves, to own a home. We can't afford to learn this lesson the hard way again.

Amen to that.


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