Student Loans May Be Next Financial Crisis

 

Moody's: Student Loans May Be Next Financial CrisisTyler Kingkade of The Huffington Post is reporting that record borrowing by college students who are graduating without jobs may lead to the next financial crisis, according to a recent report by Moody’s Analytics. “The long-run outlook for student lending and borrowers remains worrisome,” concluded the report, which came out in July.

“Unlike other segments of the consumer credit economy, student loans have not demonstrated much improvement in performance despite some improvement in the broader economy. … [T]here is increasing concern that many students may be getting their loans for the wrong reasons, or that borrowers — and lenders — have unrealistic expectations of borrowers’ future earnings.”

The Moody’s report points to the fact that student loan volume growth, unlike other lending, has accelerated during the recession. This is due in part to people seeking more education and retraining as well as some students opting to remain in college longer to avoid poor job prospects.

The report indicated that in addition to college enrollment tripling over the past four decades, “demand [for student loans] is driven by the cost of education, which has grown at an extraordinary rate over the past three decades.” Based on Consumer Price Index data, the cost of tuition and fees has more than doubled since 2000, and has outpaced inflation across all goods, health care, housing and energy.

Government cuts to the budgets of public colleges and universities, increased tuition, and endowments that have taken major hits in the economic downturn have all caused the need for increased student loans, which now outpaces credit card debt.

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