As Bubbles Go, The Student Loan Bubble is Bad

In the world of economics and finance there are all kinds of “Bubbles;” there is the “global debt bubble”; There’s the “real-estate bubble”; & of course: “the stock market bubble”. One bubble that has not gotten as much attention of the aforementioned bubbles however, is the “student loan bubble.” The latest studies that show that student-loan defaults are rising at an alarming pace. A new analysis of government data by the Consumer Federation of America (which is an association of non-profit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education,) found that the number of Americans in default on their student loans jumped by nearly 17% percent last year (2016). As of the end of last year, there were 4.2 million Federal Direct Loan borrowers in default, meaning they’ve not made a payment in more than 270 days. That’s up from 3.6 million at the end of 2015.

Experts at the Consumer Federation of America say:

“Despite all the improvements in the economy, student loan borrowers are still struggling- We thought in an improving labor market, default rates would improve but we simply are not seeing that.”

According to the U.S. Department of Education, at the end of 2016, 42 million Americans owed $1.3 trillion in federal student loans. This doesn’t include borrowing through private student loans, credit cards, and home equity loans to finance the growing costs of college. (With private loans it’s more like $1.4 trillion)

Mark Cuban, who is a very successful and well respected businessman, and is also the owner of the NBA’s Dallas Mavericks, told Inc. Magazine he believes the student loan bubble is going to burst! See video below.

Defaulting on a federal student loan can be a financial disaster for the borrower. Unlike other types of debts, most federal student loans cannot be discharged in bankruptcy. Those who go into default face serious consequences including: wage garnishment, damaged credit scores and added costs in fees, interest and legal fees. Student debt has risen along with the cost of education, which makes repayment difficult. The average amount owed per borrower rose to $30,650 in 2016, after rising steadily for years. In 2013, borrowers on average owed $26,300.

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