Is There a Student Debt Bubble?
A recent article in The AtlanticÂ looks at student debt in the United States and suggests there may be a student debtÂ bubble.Â Written by the authors of the recent book, Higher Education?,Â the article points out that “college loans are nearing the $1 trillion mark, more than what all households owe on their credit cards.”
The article also features the following provocative excerpt:
“If you want to get a name as an economic seer, try this one. The next subprime crisis will come from defaults on student debts, starting with for-profit colleges and rising to the Ivy League. The parallels with housing are striking. In both, the written warnings aren’t understood, especially on penalties and interest rates. And in both, it’s assumed that what’s being bought will rise in value, in one case the real estate, in the other the salaries which will accrue with a degree. One bubble has burst; the second is already losing air.”
In Canada, debt on Canada Student Loans is approaching $14 billion (an amount that does not include debt owed on provincialÂ or private student loans).Â Given that we have roughly one-tenth the population of our southern neighbours, it seems to me that our student-loan situationÂ may not be as serious asÂ theirs.Â That said, the prospect of a student debt bubble in the United States is something worth watching.
Nick Falvo is a Calgary-based research consultant. He has a PhD in public policy.