As we have written about HERE, student debts are spiraling. This is the direct result of state and federal governments cutting funding to colleges and higher education…thus transferring the costs directly to the American youth. Very few people realize just how much of college was subsidized by the state and federal governments, but now – the Republican cut backs in government are having an impact…mainly – kids are borrowing like never before just to get an education. As we have explained before:
This is going to affect the economy dramatically in a few ways:
#1 – Students who come out of college with 100k in debt are going to spend their excess money paying off debt…not buying new products which will create jobs and fuel the economy.
#2 – The high cost of college is now a barrier to entry for students. This is going to prove to be a deterrent to students achieving higher education and receive the necessary skills for a 21st Century economy.
The Washington Post explains how this could impact the economy:
William Brewer, head of NACBA, has said, “This could very well be the next debt bomb for the U.S. economy” — something akin to the housing mortgage loan crisis that triggered the U.S. financial crisis.
The amount of student borrowing skyrocketed from $100 billion in 2010 to $867 billion last year — or more than the $704 billion in outstanding U.S. credit card debt, according to the Federal Reserve Bank of New York. Of the 37 million borrowers who have outstanding student loan balances as of third-quarter 2011, 14.4 percent have at least one past-due student loan account. Together, these balances come to $85 billion, or roughly 10 percent of the total outstanding student loan balance.
The Atlantic compares student loans to the housing bubble:
How does the housing bubble debt compare? If you add together mortgages and revolving home equity, then from the first quarter of 1999 to when housing-related debt peaked in the third quarter of 2008, the sum increased from $3.28 trillion to $9.98 trillion. Over this period, housing-related debt had increased threefold. Meanwhile, over the entire period shown on the chart, the balance of student loans grew by more than 6x. The growth of student loans has been twice as steep — and it’s showing no signs of slowing.*
As you can see in the chart below – student debt is on track to exceed credit card debt as the largest 90+ days delinquent loan type…and once you’re 90 days delinquent – it’s hard to get back on the right track.
Source: Washington Post
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