The next bubble: Student loan reform

David Hatten, Tip of the Hat

“Too big to fail” is a phrase that was used to both condemn and defend banking institutions during the worst financial crisis since the Great Depression. It’s a phrase that’s being used to describe a growing debt bubble that involves almost every person reading this. That bubble is the student loan debt. Our generation and every college-bound student after us is quickly getting buried under a mountain of debt. Not only are we burdened with this problem, but the country as a whole is going to feel the ill effects of irresponsible and burdensome lending.

The total debt of student loans was recently marked at $1 trillion. It’s worth noting that there is more debt from student loans than there is credit card debt in America. That’s saying a lot. The majority of those student loan borrowers are under 40 years old. There is not one single cause of this debt explosion; colleges are raising tuition, banks and governments are lending out money they know they probably won’t get back (where have we heard that before?), and students are relying on post-graduate salaries that are a fiction to most. So what do you do when you graduate with $40,000 in loans and a $50,000 per year job? You don’t buy a house, that’s for sure. Your personal growth as a citizen – buying a house, buying a car, building good credit – becomes slowed. No one with that much debt can afford to saddle a mortgage on top of that. Our economy and housing market are still in recovery, and our generation of college students will most likely be unable to help with that recovery. This monumental debt isn’t just affecting the person burdened with it; it’s going to curb the already slow recovery of our economy.

It’s not just a sluggish economy we have to look forward too; the government is going to feel the blow of student loans as well. Within the past few years laws have passed making the government the only provider of federal student loans. This means those loans now entirely rest upon the government. Your debt is now a part of the overall national debt. As student debt grows, the government is going to start feeling it in more ways than one. You’d think the government would be looking toward the future to make sure they’re not going to be backed into a corner with a mountain of debt and a generation of indentured servants. But if Congress allows the current model of federal loans to expire, interest rates on Stafford loans (that you probably have) are going to double to 6.8 percent. A loan that you took on when you were 18 is now facing a massive interest hike, and there’s nothing you can do about it. At the current rate, the government is going to face a growing portion of the national debt that is holding back citizens and progress.

When the banks were issuing bad loans and contributing to massive economic tumult, they and several companies received bailouts because they were “too big to fail.” These were huge companies with massive responsibilities; we are a group of unorganized college graduates burdened with a mountain of debt without a six-figure job to pay it off. No one is going to bail us out. Part of this is the fault of the students. If you’re taking out $40,000 worth of loans to pursue a degree you know will be monetarily unproductive, you’ve made a poor choice. But if everyone is taking out $40,000 worth of loans and everyone is finding their jobs aren’t quite what their degree promised them, something is wrong with the system. The system needs to be fixed before the bubble breaks.