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A Student Bailout is Inevitable

A bubble is on the horizon. Some colleges are bursting at the seams with new students. As a result, total student loans keep hitting new highs.

In 2007 student loans totaled $516 billion with 28 million borrowers. Today, student loans exceed $1.2 trillion with over 41 million borrowers. That’s over a 130% increase.

The chart below shows the annual growth…

Student Loans 1.2 Trillion

The 2016 number is just quarter one. By year end, it will likely be higher. There is a clear upward trend. But what’s spurring this growth?

Our low interest rate environment makes borrowing more attractive. Interest rates are at historic lows. On top of that, student loans are easy to obtain. Many government policies encourage further education. Low rates and easy lending standards help increase college attendance.

Now, there is another trend pushing folks to further their education… The lack of jobs. Last week I showed you vital research on a revolution underway. The world’s population is rapidly growing and software is replacing jobs… more people and fewer jobs. Folks feel the need to further their education to find work.

According to the National Center for Education Statistics, during the 2015–16 school year, colleges and universities are expected to award 952,000 associate’s degrees; 1.8 million bachelor’s degrees; 802,000 master’s degrees; and 179,000 doctor’s degrees.

That’s a big wave of “educated” folks entering the job market (many of them trying at least). But unfortunately, there aren’t enough quality job openings. As a result, many recent grads take jobs they’re overqualified for… Starbucks baristas for example. For many after graduation, the loan payments start. It doesn’t leave much time to find a good job. Many grads are forced to take the first offer or get sucked into part-time work.

Low paying jobs don’t work well with paying off big student loans. According to the Wall Street Journal, more than 40% of Americans who borrowed from the government’s main student-loan program aren’t making payments or are behind on more than $200 billion owed. It’s staggering. Without intervention, more graduates will default.

When the housing bubble burst, homes were taken away. But when the student loan bubble implodes, graduates will still have their expensive degrees. So who will lose out? My guess is the taxpayers will front the bill. Already politicians often bring up student loans. Bernie Sanders wants to make public college free. Hillary Clinton wants debt-free tuition at public colleges. Many other politicians have taken aim at the student loan problem.

If the student loan trend continues, a bailout will come. It’s already expanded to over $1.2 trillion. Demand for further education will continue to grow.

 

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