Between 2007 and 2018, outstanding
student debt is nearly tripled to $1.5 trillion, and many worry it’s the next
financial bubble like the housing crisis of the 2000s. Observers are right to
worry about a student debt bubble, but it’s not like the housing crisis.
Specifically, the federal government already backs 90% of student debt. So bad
loans aren’t about to bring down banks. And while taxpayers bear the cost of bad
loans, that’s not where the big risks are, either. Most delinquent and defaulted
loans are small, and the government usually recovers most of the money.
Instead, the real risk of a financial bubble come from income-based repayment,
a program where borrowers pay a small share of their earnings, no matter their
debt loads, and then have remaining balances forgiven after 10 or 20 years.
Costs for this program have skyrocketed, with debt for graduate and professional degrees
dominating the program, because those students can borrow virtually unlimited
federal loans. And unlimited loans and loan forgiveness for graduate school,
is the real student debt bubble. Do you think there’s a student debt bubble?
Let us know in your comments. Also, let us know what other topics you’d like our
scholars to cover in 60 seconds, and be sure to LIKE and subscribe for more
research and videos from AEI.