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We saw it with housing just a few years ago. Young, first-time, would-be homeowners were told how easy it would be to get an affordable mortgage. With aggressive marketing campaigns by mortgage companies that ramped up expectations of home ownership (without any discussion of potential risk), young people were persuaded to buy that house and get that mortgage, even though down the road they may not be able to pay. These mortgage companies then sold the high-risk mortgages to other companies, so everyone profited… until, of course, the homeowners reach a point where they no longer could pay (whether it was because of an adjustable interest rate that spiked, rising unemployment, or unexpected maintenance and expenses), and the whole bubble collapsed.
I’ve been saying for years that student loans are next. I don’t want to be right (I’ve got my own student loans that I’m dealing with), but now Moody’s, one of the three major credit ratings agencies, is acknowledging that we might be headed in that direction.
For the past twenty years, the cost of American higher education (both private and public) has been skyrocketing. Federal financial aid has not been keeping pace with these astronomical costs, so increasingly students are turning to expensive and risky private student loans to finance their educations. High school students and parents are told that this is an “investment;” that taking out tens of thousands of dollars in student loans will lead to a high-paying job, and it can all be paid off. But with a stagnant, sluggish economy and high-paying entry-level positions drying up, students are finding themselves with a fancy degree, lots of student debt, and no viable way of paying it all off. Youth unemployment is at a jaw-dropping 15%, and with recent deficit reduction legislation passed by Congress and signed by the President, borrowing will be even more expensive for students due to the elimination of subsidized federal loan programs.
Are student loans going to be the next bubble to burst? Read more here: http://www.huffingtonpost.com/2011/08/09/moodys-student-loans-bubble-burst