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$830 Billion in Student Loans: The New Mortgage Bubble

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A strange milestone was marked this week in the history of student loans. The total balance of all outstanding US student loans (given as $730 billion in DIY U, based on OMB estimates) is now estimated by Mark Kantrowitz of Finaid.org at more like $830 billion -- $605.6 billion in federally guaranteed student loans, which have interest rates fixed and in some cases interest subsidized by the government, and a further $167.8 billion in private student loans, with interest rates that hover around 18-20%. Furthermore, Kantrowitz says, $300 billion in federal student loan debts have been incurred in the last four years.

This means the total balance of student loans has just surpassed the total balance of credit card debt for the first time in history. Each makes up roughly a third of the money Americans owe, mortgages excluded.

The good news here is that at least since the credit crisis in 2008, credit card debt has been going down slightly. Americans are saving more and spending less.

The bad news, of course, is that student loan debt is much more severe than credit card debt, because it can't be discharged in bankruptcy. That means your only "recourse" if you can't manage your loans is default, and in the case of federal loans, that means being pursued until you die. The federal government can and will seize your tax refunds, Social Security and disability payments until your dying day.

From where I'm sitting, the buildup of the national student loan balance looks like a massive betrayal of trust. People have been told for decades that this is "good" debt. In fact it's really, really bad debt. Increasingly, high unmanageable debt burdens are falling on those least prepared to deal with the stresses and costs of college: the so called "nontraditional" adult, working-class student who is more and more likely to attend for-profit colleges that cost an average of around $14,000. And 40% and higher of these students are defaulting. (The same students default on their loans at higher rates when they attend for-profits, even controlling for demographics.)

This is starting to look more and more like the mortgage bubble. What was first depicted as an exapansion of opportunity now starts to look like a massive scam perpetrated on the socially disadvantaged. The difference is that while the mortgage bubble was happening, homeownership in the US actually rose to an all-time high. Whereas while we were adding $300 billion to our national student loan tab, college attainment among young people actually fell.

Someone with experience in the for-profit college marketing business told me that the same online sales geniuses who used to work for mortgage brokers are now employed by for-profit colleges. Their business is the same: fill out the forms, get the money, consequences be damned. Will we stop them this time?

If you are moved to action, check out the good folks at Student Loan Justice , who advocate restoring bankruptcy protection for all student loans.