Forget the Housing Bubble, Student Debt Will Be Our Downfall

  • The student debt bubble shows no signs of slowing.
  • The market for student loan asset-backed securities has historically been a safe one, but that could change if a progressive Democrat takes office.
  • Students’ failure to repay their loans could have huge consequences on the government.

Student debt is poised to become a huge topic during this year’s election as candidates square off over the ballooning cost of college in America and the crushing debt it has dropped on younger generations. A lack of government funding in the U.S. has prompted universities to pass their expenses onto their students, which has raised the cost of higher education exponentially.

Instead of feeling push back from consumers for their price hikes, America’s universities are met with thousands of students willing to pay their tuition with borrowed money. That’s because a college degree translates into significantly higher wages. However, the cost of college has risen at a much higher rate than wage growth. According to Collegeboard, tuition for in-state students at a four-year public university is three times what it was in 30 years ago. Meanwhile, a study by Congressional Research Service shows that real wage growth between 1979 and 2018 was just 6.1% for the average worker.

Chart: New York Fed

Said another way, 20-24 year olds are making an average of $29,770 and carrying around a loan balance of $37,000 plus interest of anywhere between 4% and 8% on that balance. From that perspective, it’s understandable why out of the nation’s 44 million borrowers, 25% aren’t making payments.

That percentage is seen increasing as well. The Brookings Institute says it expects 40% of borrowers to default on their student loans by 2023.

Keep in mind that borrowing money doesn’t guarantee a degree either. The National Center for Education Statistics says that 60% of students who embark on a degree at public institutions will complete that degree within six years. That figure rises to…

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