U.S. Student Debt Looming Large

December 4, 2012  •  From theTrumpet.com
Analysts say this mushrooming problem could be the start of a new subprime crises. But there is a solution.

One in five U.S. households currently includes at least one resident carrying student debt, and the amount of outstanding student debt in the nation now totals almost one trillion U.S. dollars, experts said on Tuesday. Some analysts fear that the situation could be the start of a new subprime crisis.

Sharon Sakson of New Jersey is an example of a person encumbered by student debt. She finished her graduate degree in 2005, and then had to begin repayments on her $40,000 student loan. Sakson had expected to find work immediately after graduating, but she couldn’t find work until 2009. She was forced to declare personal bankruptcy, and now her home is in the process of foreclosure.

“It was an investment and it would pay off because I would get better jobs. And so I wasn’t concerned about the amount of debt. I thought that would be OK,” Sakson said.

Sakson isn’t the only American struggling beneath the weight of student debt. According to the Consumer Financial Protection Bureau (cfpb), more than 850,000 student loans are in default.

Experts see disquieting similarities between today’s student loan market and the 2008 mortgage market, which triggered the global financial crisis. In both cases, lenders were eager to extend loans to parties who were often in a poor position to repay them.

Rohit Chopra of the cfpb explained the trend, saying, “Some lenders were able to give loans to students without even verifying they were enrolled, and they were able to flip those loans and package them into securities and sell them to investors.”

This process removed the risk from the lenders and reduced their incentive to make sure borrowers could pay back their student loans. Student loans are particularly difficult for borrowers to escape because, unlike credit card and mortgage debt, it isn’t wiped out by bankruptcy. “I would not go into debt to get a degree. It doesn’t make sense. I worry for all the young people,” Sakson said.

More and more graduates, swamped in debt and jobless, are saying college is the worst money they ever spent. This is an intensifying problem with clear causes—and at least one possible solution. To understand what that solution is, read Trumpet columnist Robert Morley’s insightful article, “Sucked Under by That College Degree.