The "Answer" to Yesterday's Question

Since 1997, one economic measure has rocketed up an incredible 800%.  It's not home prices. Not government pensions.  No, not medical costs, and not even higher education tuition. It is student loan debt.  (By the way, I did get some very interesting and well thought out answers, but no one came up with my correct answer.)  It's not just the growth rate of student debt that’s breathtaking.  It is also its absolute size, approximately $900 billion. (See the Student Loan Debt Clock.)  For example, would you be startled to learn that total U.S. education loans recently surpassed total U.S. credit card debt?  It did, for the first time in history.

And get this: Total education debt now amounts to 93% of total U.S. defense spending.

Now, why is all this important?  Four years of college can take decades to pay off.  The average student loan takes on average 10 to 25 years to repay.  Ouch!!  This is a bubble just waiting to burst.  

Student loan debt exhibits all the requisite characteristics of a true bubble: one that is credit-fueled, government-supported, and widely popular.  In other words, we have some striking similarities between the housing bubble and the education bubble.  And, we all know what happen to that bubble.  Also, the not-amusing part of this picture is that student loans have been rendered non-dischargeable (except in extraordinary circumstances) in bankruptcy.  What does that mean? Students can not simply walk away from student loans, like those mortgages they may have.  

I firmly believe that all this student debt outstanding will not end very good.  I look for massive defaults just like occurred with the housing bubble.