Despite the President’s insistence that the U.S. economy is in good health, expert financial analysts agree that in reality, it’s on the verge of repeating 2008’s financial collapse. This is largely the result of economic policies that, as with 2008’s housing bubble, have facilitated the emergence of asset bubbles throughout a range of industries. Among the many industries at risk of becoming “bubbles,” the student loan credit market seems poised to be the economy’s most vulnerable given the President’s new plans for higher education.
While the Obama Administration’s proposal to provide two free years of community college to students nationwide may be a good will attempt to increase access to higher education, it will ultimately channel money from the wealthy to the middle class, and in doing so, create an education bubble. Plans to offer excessively low interest rates for student loans will only exacerbate this bubble. At a time when the average student loan debt for a 25-year old graduate is $33,000, talks of loan interest rates being “too low” may not be popular; however, the underlying point is valid.
On one of her recent shows, Dawn J Bennett, host of the Financial Myth Busting with Dawn Bennett radio show, spoke with Freedom Works analyst Logan Albright, who agreed that when asset bubbles do begin to burst, the student loan credit market will be the first to go.
As Albright notes, nobody’s trying to argue that the average amount of student loan debt isn’t high; the issue is that rather than trying to make the cost of tuition manageable, we’re simply taking measures to extremes by providing essentially non-existent interest rates, extensive lines of credit, or in some cases, completely free education.
The student loan credit market has been on a dangerous trajectory for decades now, which is one of the primary reasons it will likely be the first sector of the economy to burst. The asset bubble magic recipe—high prices, easy money, and highly accessible credit—is certainly at play in today’s student loan credit market. As of last month, the student loan credit market surpassed the 1 trillion dollar mark, which means it’s the largest source of consumer debt in the United States. In the fourth quarter of 2014 alone, cumulative student loan debt increased by $31 billion.
In addition to rising costs of college, overextension of credit, and low interest rates, the student loan credit market is further hindered by its lenders inability to pay off their debts. The current job market, despite the President’s praises, simply doesn’t provide graduates with the means to consistently make their payments. Student loans maintain the highest level of delinquency (at 11.3 percent) compared to every other form of debt in the country.
Some, like well-known investor Mark Cuban, have gone so far as to predict that not only will the student loan credit market burst, it’s burst will effectively put colleges out of business. While this remains to be seen, there’s one thing that Cuban, Bennett, Albright, and others in the financial industry agree upon: the government’s approach to overseeing the student loan credit market has paved a clear path to a student loan bubble, one which all signs indicate is more than ready to burst.
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About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett firstname.lastname@example.org