S&P Warns Student Loans May Be The Next Bubble To Burst In US Economy

Thought the mortgage crisis was a rough ride? Buckle up for the next financial crisis.

Student-loan debt may be the next major U.S.-asset bubble to burst, according to Standard & Poor's.

The problem: colleges and universities are hamstrung with lower endowments, while students have increasingly lower prospects of ever paying back their loans. Student debt now outpaces credit-card debt, approaching $1 trillion for the first time. The Project on Student Debt found that in 2008, 67 percent of college students at four-year universities were graduating with student-loan debt. That number is even higher for students at private nonprofit and for-profit colleges and universities.

"Student-loan debt has ballooned and may turn into a bubble," the S&P said, as reported by Bloomberg. "There are more defaults and downgrades for some student-loan asset-backed securities."

S&P joins a growing chorus of economic observers warning that student-loan debt could become a significant albatross on the overall U.S. economy.

In 2011, Moody's Analytics issued a similar warning. In a report, Moody's concluded, "The long-run outlook for student lending and borrowers remains worrisome. Unlike other segments of the consumer-credit economy, student loans have not demonstrated much improvement in performance despite some improvement in the broader economy. ... [T]here is increasing concern that many students may be getting their loans for the wrong reasons, or that borrowers -- and lenders -- have unrealistic expectations of borrowers' future earnings."

The National Association of Consumer Bankruptcy Attorneys also recently released a survey, which found that four in five bankruptcy attorneys are finding more clients with student debt as a significant problem.

But there's more bad news.

A new report from the Pew Research Center released Thursday found the employment rate for young adults at a 60-year low. In addition, fewer parents are now expecting their children to be fully independent by age 22, making it even more difficult to pay off those student loans.

The Project on Student Debt notes the average debt for students at public universities is about $20,000, but grows to between $27,650 and $33,050 for students at private schools.

Comments

[Six Mill]

08:39 PM on 02/27/2012

as long as we do no bailouts for these deadbeats.

[Paperalaska]

05:09 PM on 03/04/2012

I would love to know who you are referring to as 'deadbeat'?

[Six Mill]

05:34 PM on 03/04/2012

if you're one, you'll know. people that don't like paying their bills for a start.

[Ben Friend]

01:23 PM on 02/27/2012

I also have been watching this fiasco closely. The balloon won't pop like the mortgage bubble because there are no physical assets that secure these loans (you cannot foreclose on a diploma). For this same reason, it's nearly impossible to discharge these loans in bankuptcy...therefore the banks WILL get their money, either directly or through the cosigner. I see the bubble slowly deflate like an aging balloon and consequently hinder the economic recovery for decades to come.

[InLosAngeles]

03:09 PM on 02/14/2012

Where's Uncle Ted when you need him?

http://www.youtube.com/watch?v=eiRGRvE_Wqg

[Letamendiist]

06:36 AM on 02/13/2012

This is exactly what I predicted in my article last year! Check it out, just Google:

"7 Predictions - The Gradual Deflection of the Student Loan Bubble" by Carl Letamendi.

Let's keep the discussion alive. This financial crisis is not over, and the financial system, MUST be heavily regulated, and not left in an anarchistic state. This Laissez-Faire ideology of the late 1600s is completely antiquated in our modern banking system, allows an indefinite amount of deceit, risks, and exposure to losses. Feel free to share. Let's stop the next bubble before it starts to deflate. Our economy is broken, but fixable, insofar as we have the right people guiding the economy in the right direction.

Carl M. Letamendi, M.B.A.
[e-mail]
Ph.D Candidate, Department of Conflict Analysis and Resolution
Nova Southeastern University
School of Humanities and Social Science

[sheerplat]

12:42 AM on 02/13/2012

Like so many other consumer experiences in our country, student loans have evolved into a predatory enterprise. The reasons are numerous. That said, until things change parents and students must become better strategist in how they choose to pursue higher ed.

Every one of my kids attended or are attending top schools on full ride scholarships. This didn't happen by luck. We engineered and manipulated the process to work in our favor. Not saying everyone can accomplish that since there are only so many full scholarships, but my point is that you must take time to learn how the system works, plan far ahead, and implement an informed strategy. Doing so my not result in getting a full ride each time, but families and students can dramatically cut their costs and minimize the need for taking on so much debt. The key is to start early and learn how to work all the angles.

You don't have to be lemmings taking on tons of debt to get an education. But you do have to be informed which takes a little time and effort, but is completely free.

[Six Mill]

08:42 PM on 02/27/2012

thats how you need to work it....I learned to hit a curve ball. it just might be predatory lending and if it is its because of wide-eyed greedy s.u.c.k.e.r.s.

[jhilde]

05:17 PM on 02/28/2012

Yea. you and your kids will all starve to death in the first 2 months after the crash ..oh wait the others will be in the work camps and your "worked the system" kids will be "Kapos" in the work camps..

[sheerplat]

08:22 PM on 02/28/2012

I have no idea what your comment means. Try again.

[dior12]

10:11 PM on 02/11/2012

There are only a few degrees that if you complete, you are guaranteed to get compensated (medicine is one).
In NO way am I saying that people should not be doing other degrees (i.e. BA), however, why are universities charging the same price ??

[senseandnonsense]

09:35 PM on 02/12/2012

So people getting medical degrees should be charged platinum prices and English majors, presumably, should get their educations for a dollar?

[snwj]

10:01 PM on 02/11/2012

Frank Zappa said "if you want an education go to the library"

[dior12]

10:16 PM on 02/11/2012

It's not about getting an education. It's about getting credentials.
A bachelors degree is pretty much useless now, masters is following closely behind, thus, people are studying longer to differentiate themselves from others in order to get a job. Little do they know that studying longer does not necessarily equate employment (given the credentials).

[senseandnonsense]

09:35 PM on 02/12/2012

It is ALL about credentials.

[KeepNIt2Real]

01:50 PM on 02/14/2012

You just mentioned something that's inherently wrong with the system. Can you justify the longer time period of higher education and equate that with employability and sustainable outcomes? That hasn't been the case within the last decade or so. What do "credentials" have to do with getting sustainable employment?

What you've just mentioned sounds like nothing more than an privileged club.

[Wabladoob]

10:37 PM on 02/26/2012

I think there are a lot of pernicious ideas going about concerning education... One of them is that you can pursue whatever field of study you want and that having a four year degree will automatically mean you get work.

Lets be real people. The private sector needs trade skills, not scholars. Sometimes the two things overlap, but that's NOT always the case.

[sb1776]

08:51 PM on 02/11/2012

I bet a ton of HuffPo readers are wringing their hands and getting angry about this story, while contemplating whether they want to take out 90K to get a PhD in Multicultural Puppetry.

[senseandnonsense]

09:36 PM on 02/12/2012

It's easy to see why you have no fans!

[InLosAngeles]

03:06 PM on 02/14/2012

lol

[Leon Engelun]

02:58 PM on 02/11/2012

I paid my way to go back in 1967 - whenever. I worked full time and paid for school along with home, wife, car, insurance etc. It took me 12 years to get my degree. Many times I had to work 2 jobs at the same time and still go to school.
These days kids get out of high school and just figure that mom and dad are expected to pay their way. The kids play and go to school, no worry, mom and dad pay the bills for food, lodging and school.
I refused to with my kids. My boy enlisted in the military and when he came out his school was paid. My daughter got married, had a 1 kids so far and she works and is taking classes in college. She is doing it one credit at a time like me.

Lesson to the stupid parents who pay the way and a lesson to the kids who get a free ride. In the end the free rides end and the problems begin.

[elcastle]

05:22 PM on 02/11/2012

Honestly, my husband and me went to college in former easter european country right after high school. Got excellent education with zero loan. What you did is amazing, but truly, I believe that if you really want to go deep in education - like medicine, science, math...etc the best is to start as soon as possible because brain work better, you have no distractions and you really can focus on achieving carrier. The way how it goes here - kids who work next to educating themselves, they often are exhausted, not focused at school having no time to spend on going deeper...it is maybe good if you have same basics and then continue - but 12 years spread out, how can you remember what you studied first year...it is just very impractical with most carriers. I still don't get it how some under average eastern Europe country can still give kids free college education, included medical school and law schools..on very high level, and we here let parents and kids get enslaved with loans for simple education. This is system I can't understand, and why it is business and why anybody can go to college. Even with very poor GPA. Maybe it should be free and just for kids, who have very good result in schools and pass entry exam - or SAT with high points.

[bamz]

08:55 PM on 02/27/2012

exactly right! F&F
That has been my view all along. That is also why children of foreign born ( Asians and Indians) have a clear advantage, their parents will sacrifice a lot in order for their children to be at school full time and not in need of working to supplement their income. so these students are fresh concentrating on studying, and not on applying to work. also imagine how important is idle time to young students kicking ideas at a cafe or a park, yes it is important, if you are working two jobs and taking 12 units you can't do that...so much to say.

[dior12]

10:06 PM on 02/11/2012

I agree with you partially but the problem lies in the fact that if you don't go to school straight out of high school, competitive programs such as medicine or law will be increasingly out of reach for you.
Why?
For one, you are at a disadvantage because you will be competing with students who do not need to work, and can volunteer 10 hours a week. Secondly, medicine, even though, it has become more open to the non-traditional students (i.e. who have been out of college for years), it's not necessarily the best idea to start a career in medicine at this age if you plan to specialize, or even subspecialize.

I think the biggest problem is because tuition cost so much in the US. I still do not know why because education is extremely important.

[blueagle8u]

01:32 PM on 02/11/2012

Too bad the GOP REFUSE to do ANYTHING to spur JOB growth! We better start working together real quick! lol

[hungryblackcat]

12:42 PM on 02/11/2012

Also I should mention the interest on my loans are double that of my husbands loans! His loans are for 12 k!

[hungryblackcat]

12:40 PM on 02/11/2012

I can't wait for it to burst because that means something will have to change!

[blueagle8u]

01:34 PM on 02/11/2012

Instead of Big Corporations and special interest blowing MILIONS upon MILLIONS of dollars on these LOSER Politicians,how bout putting it towards JOB CREATION! Heaven FORBID!

[tosc]

09:12 AM on 02/11/2012

the idea was that you pay for your education and in return you acquire a reasonable paying position in the profession of your study and you are able to repay your loan, but that equation has been broken. I owe over $65 K for my BA and the teaching credentials I worked very hard to earn, graduated Cum Laude, but am unable to secure a position that pays much more than minimum wage. How can I pay it back? There are only so many dimes in a dollar and my dimes have been minimized and stretched just to maintain a roof over my head and some food in my belly.

[dior12]

10:07 PM on 02/11/2012

I still do not understand why tuition prices are so high. It just doesn't make any sense whatsoever.

[Letamendiist]

06:47 AM on 02/13/2012

Because as long as universities maximize their "cost of attendance" to the department of education, they can get more loans. Its very similar to a Doctor's office billing an insurance company for procedures that were not performed on a patient.

Carl M. Letamendi, M.B.A.
letamend@n­ova.edu
Ph.D Candidate, Department of Conflict Analysis and Resolution
Nova Southeaste­rn University
School of Humanities and Social Science

[Wabladoob]

10:33 PM on 02/26/2012

The are a lot of people floating around with teaching degrees these days that are having trouble securing work... Looking to find out which are the fastest growing fields and what type of skills are needed to work in those fields is simply done. I am not trying to be condescending but it's possible your current predicament might have been well.... predictable.

[bigjakeIII]

08:40 AM on 02/11/2012

subprime student loans?

[xrepublican]

11:52 PM on 02/10/2012

ONE YEAR of college for my son costs as much as my whole degree - both private top tier universities. Thank God we've been saving for college long before our kids were born because the interest on current student loans is far higher than what we paid (which was still high enough to make it hard to pay back even WITh a 'good ' job).

It's a con job - with too many people going to mediocre colleges and learning little (you should read some of the resumes and cover letters I've seen). Too many get a degree with little thought about future employability (unless you have a trust fund this SHOULD be one of your first concerns). Too many go on to get grad degrees or law degrees (along with more debt) that do nothing to help their employability. Many MBSA's are worthless and unless you go to a GOOD law school and are at the top of your class odds are you'll be chasing ambulances instead of getting a partnership at some top firm.

[Silverfloss]

08:30 AM on 02/11/2012

That's the problem. What's the solution?

[TggerJen]

02:42 PM on 02/11/2012

A big part of the problem is the money flooding into the higher ed systems. Tuition and fees have far outpaced cost of living increases year after year, because people are willing to borrow the money and institutions are happy to admit students they know won't/can't finish because they want the loan money and it doesn't hurt the institution when the government doesn't get paid back. It's time to drastically cut government funding of higher ed and get some of the hot money out of the system; it's also time to rein in spending at public universities and colleges- we no longer are awash with resources we can throw at this.

Cut off government backed loans at for-profit colleges. Right now they admit people who aren't capable of doing the work; they do that to get the student loan money.  If those for-profit schools have to fund their own student loans out of their own profits, they'll likely admit people who can finish school and get a job to pay them back. Do the same at private religious schools- separation of church and state for tax-payer funding of them; they can fund their own student loans and then they'll be more careful.

At state and non-profit schools, tie the numbers of government-backed student loan approvals directly to graduation rates of those getting government-backed loans. If they are admitting the wrong students to get the loans, it's time to stop rewarding them for that. They'll be more careful when we force them to be and stop rewarding them for taking advantage of 18- and 19-year olds.

Issue government-backed loans only for science, technology, engineering and math majors plus some high-level education majors; those people are more likely to be able to get jobs and pay back the money.

Require that all US employers use e-verify for hiring and require a recheck of all employees every 6 months. Then put significant fines in place to motivate compliance; tie it in with a database that catches multiple people using one identity and prosecute identity theft rigorously. The unemployment rates here are too high to allow foreign nationals here illegally to take American jobs. Stop promising to pass the Dream Amnesty and commit to enforcement instead; new college grads and young people with some college already have very high unemployment rates and it's evil for politicians to keep flooding the labor market with foreign nationals when there aren't enough jobs for young Americans.