Managing Student Loans

The pending student loans crisis



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Over the last several years, there has been extensive speculation that the next bubble to burst within the economy will be student loans. As has been widely discussed on news outlets such as The Atlantic, the amount of student loans taken has increased significantly. The financial situation that American education system is in could have terrible ramifications for the country. Needless to say, we should be mindful of the coming crisis in delinquent student loans.

In fact, according to one article, student loans increased by over 500 percent from 1999 to 2011. Of course, this statistic on its own is problematic. However, it is important to understand why there is such a problematic implication to the increase in student loans.

What are the reasons and implications of high student debt?

Firstly, it is important to understand why student debt levels have gotten to be so high in the first place. Typically, when the economy crashes, as we saw in both 2001 and 2008, there is an increase in the number of people who return to school to enhance their educational ability.

The reason for this is that when the economy is doing poorly, less roles are available so individuals attempt to get retrained or acquire new skills in order to obtain a better job upon graduation. However, if the economy does not recover when these students graduate, then they will be burdened with even higher levels of debt.

Delinquencies are rising

Numerous sources, including the Dayton Daily News, have documented the increase in delinquent student loans as the recession hit the United States. However, another reason for this rise in delinquencies is that the price of education has skyrocketed over the past decade.

Jim Surowiecki articulates well just why these costs are rising so dramatically in saying, "sectors, like education, have a harder time increasing productivity. Ford, after all, can make more cars with fewer workers and in less time than it did in 1980.

"But the average student-teacher ratio in college is sixteen to one, just about what it was thirty years ago. In other words, teachers today aren’t any more productive than they were in 1980. The problem is that colleges can’t pay 1980 salaries, and the only way they can pay 2011 salaries is by raising prices."

It is clear there is a lot of problems in the current higher education system, particularly when one attempts to determine how a country can mitigate a crisis of such epic magnitudes.

Unfortunately, students and governments must await the potential for an economic recovery if they are to have any hope that they can potentially pay back their hefty student loans in the future. As time passes, it appears as though this prospect is becoming even slimmer and the coming crisis in delinquent student loans is inevitable. When this crisis takes place, it will be a very challenging time for everyone in the United States.

More about this author: Dave Thomson

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