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Student loan debt bubble will pop sooner than later

in Education & Healthcare by

While we continue to hear about the Bitcoin bubble, another bubble,  the student loan debt looms.

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.

Half of black student loan borrowers defaulted on loans. Photo credit: Jonathan Daniels

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.

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