While we continue to hear about the bubble, another bubble, the student loan crisis emerges. Now, debt reached $1.4 trillion, with many loans being backed by the U.S. federal government. As defaults continue to rise, experts agree it will have an effect on the economy.
Currently, 44 million people have student loan debt. Out of that, eight million are in default and only 37 percent of borrowers are on track with loan payments.
The most affected group are African American borrowers. Reports show that half black student loan borrowers defaulted. With a rise in the cost of living outgrowing wages, a recipe for a bubble is inevitable.
In 2007, the U.S. Department of Education began to write most of the student loans, removing banks and private financial firms. Now the agency is one of the biggest debt collectors in the country. In recent years, the Dept. of Ed. received scrutiny for contracting debt collecting agencies that used unethical practices and terms to collect debt.
Experts point out that at the time the student loan debt resembles the 2008 housing bubble. Both backed by federal government and show shaky underwriting practices; and borrowers begin to default in payments due to a sluggish economy and unethical debt collection practices.
While higher degrees link to better jobs and economic mobility, most people rely on student loans for college. As a result, borrowing money to make money places borrowers in perpetual debt.
The problem is, jobs are not providing sustainable living in which former students can pay off loans. Nor can borrowers make other major life milestones such as marriage, or move on to purchase a house or accrue savings, a part of the reason for attending college.
Cost of Education
Emphasizing the issue of a looming student loan debt bubble are growing tuition fees.
According to a US News report, tuition costs jumped at public and private schools considerably. For in-state public educational institutions, a 234 percent increase in the past 20 years shows a decline in the affordability of post secondary education.
As well, the United States carries the highest tuition costs in the world. In Japan, the cost of living exceeds the average in the United States, but annual college costs in the prominent Asian country falls thousands of dollars below the U.S. average.
More problematic, the average cost of a U.S. public university is a little over $20,000, says the College Board. However, the real median family income in the country in 2018, is $31,099, leaving roughly 65 percent towards post secondary fees, if paid. In 2016, the real median household income was $59,039 in 2016. A college loan becomes a necessity rather than an option.
Some borrowers discovered that a college education does not guarantee even a job. For-profit schools that targeted veterans have come under fire for predatory enrollment and low career placement. In some cases, schools closed down before students completed degrees.
To worsen the issue, a 2015 plan Barack Obama put in place that promised students full relief for more than $550m in loans at now defunct schools is being turned over by current Education Secretary, Betsy Devos, who works to give partial relief.
Even when companies attempt to assist in debt payment, reports show that the process has become difficult. In some cases, employer contributions have been rejected or delays in payments made by third-party companies.
Finding Relief
People began to galvanize to answer the student loan debt crisis.
In 2015, activists went on a strike by refusing to pay any more loans when the Dept. of Education failed to discharge loans from defunct schools. As well, Congressman Mike Quigley (D-IL) introduced a bill to reduce interest.
Nonetheless, the business of debt collection is good business, so student loans are a problem for borrowers, but a gold mine for debt collection industry.
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