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Student Loan Bubble

Posted by Steve Markowitz on June 25, 2014

Evidence of bubbles is becoming more apparent by the day. The first-quarter GDP figures were revised downward today by the Commerce Department by 2.9%. Irrespective of this ominous indicator, the stock market went up. These two opposing occurrences in one day indicates that risk fear has evaporated from investors who believe that with ever continuing Federal Reserve lose money policies the market will to rise indefinitely. These investors sound eerily similar to those that invested in the housing bubble in the early 2000’s. It did not and pretty for that group

Equity valuations are not the only bubble that is growing. Another one with dangerous implications for the economy is student loan debt that now exceeds $1 trillion, greater than the total Americans’ credit card debt. This excessive debt has been saddled on younger Americans who are having difficulty finding jobs. It will be a weight on their shoulders for years to come further inhibiting long-term economic growth.

Successful businessman and Dallas Mavericks owner Mark Cuban was interviewed by Inc. Magazine where he correctly stated the dangers of the student loan bubble:

“It’s inevitable at some point there will be a cap on student loan guarantees.  And when that happens you’re going to see a repeat of what we saw in the housing market: when easy credit for buying or flipping a house disappeared we saw a collapse in the price housing, and we’re going to see that same collapse in the price of student tuition, and that’s going to lead to colleges going out of business.”

The brief video clip below states a problem, which to a great extent, has been of the making of the US government and its interventions into the student loan program. Not only has the government’s involvement saddled younger Americans with unnecessary debt, but it’s facilitating of this debt has led to significantly increased cost of higher education further exasperating this debt issue. Had student loans not been subsidized and backed by the government, higher educational institutions would have been forced to create more economic ways to educate (serve) their customers, students.

When the higher education bubble pops we can look for a taxpayer bailout that will further inhibit long-term economic growth. As we search for reasons why the current recovery is the most anemic since the Great Depression, we can look at the government interventions and regulations as primary causes.


2 Responses to “Student Loan Bubble”

  1. Carl Hackert said

    Thanks, Steve, for providing this sobering economic warning. College debt and tuition is out of sight and the Administration is proposing forgiving that debt after 20 years or so – creating a new class of dependency (a/k/a Democrat voters of the future). There are college presidents and athletic coaches who are making millions per year with perks that rival our nation’s top CEO’s or the Royal Family.

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