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The Next Financial Crisis - Student Loan Debt?

Standard and Poor’s has cautioned that student loan debt is getting out of hand and could be next big financial issue that the recovering United States economy has to deal with. This comes amidst reports that the debt for students who attended public universities is on average $20,000. This number is higher for students that attended private schools and this figure has actually gone up from $27,650 to $33,050.

The problem with these reports is that students will find it hard to pay back these loans given the tough job market. The same report mentioned in the previous paragraph also states that 67 percent of graduates of four-year universities had student loan debt. Student loan debt has grown at an alarming rate and now exceeds even credit card debt as it approaches $1 trillion.

According to Bloomberg, there have also been a lot of defaults and downgrades for certain student loan asset-backed securities. These concerns have not been helped by the fact that colleges and universities have suffered due to the Great Recession and lost huge chunks of their endowment funds. Additionally, public universities are suffering from less funding by the government. The Pew Research Center has also reported that the employment rate for young people is at a 60-year low.  

I guess the lesson learned from this is that lenders and borrowers should be more realistic about what a borrower can make in the future and the borrower should be more responsible about what he or she uses the loan to study for. It does put a lot of strain on parents and the kids too when they are unable to be financially independent by age 22.