In recent years there has been an explosion of debt incurred by tens of millions of younger Americans as they borrow more to pay higher and higher tuition rates at the nation’s institutes of higher learning.
The primary lender to college students — many of whom take courses and graduate with degrees that don’t help them find gainful employment or prepare them for a real career — has been the taxpayers, via the federal government. Loans through programs like the FSA — the Federal Student Aid program, run by the Department of Education — have ballooned over the past decade, and tens of millions of students and former students are now saddled with hundreds of billions in loans that many simply cannot repay.
Democrats in Congress, led by President Obama, have proposed “loan forgiveness” programs, but Republicans and conservatives have opposed such measures on the grounds that simply forgiving the loan amounts would not only be insulting to taxpayers but add more to the spiraling federal debt, not to mention that it wouldn’t be fair to those who have been paying their debts.
Others are warning that the current school loan system is a financial bubble that will eventually burst like the housing bubble in 2007, leading to the ruin of scores of colleges and universities.
One of them is billionaire owner of the NBA’s Dallas Mavericks, Mark Cuban. In a recent interview with Inc. magazine’s online site, he sounded the alarm about the $1 trillion student loan crisis.
‘It’s going to burst and colleges will go under’
“College tuitions have exploded because of easy money guaranteed by Sallie Mae,” a federally run loan company. “And so, if any student, or potential student, can borrow more and more money, and its guaranteed by the federal government, why wouldn’t the colleges take it all?”
He says all of the borrowing has led to a massive bubble of student debt, “which is having a significant impact on the economy, and it’s really holding us back in the economy’s ability to grow.” He also said the student debt bubble is “holding back housing, it’s holding back apartment-building, it’s holding back car sales, [and] it’s holding back clothing sales” as debtors struggle to pay their loans amid a still-weak economy. Loan repayment takes money out of other sectors of the economy, Cuban explained.
“That’s a real problem for the economy, and I think that bubble is going to burst,” he said.
At some point, he says, it is “inevitable” that there will be a “cap on student loan guarantees,” and when that happens, there will be a “repeat of what we saw in the housing market.” Then, as in housing when easy credit dried up, home prices tanked; Cuban says student tuition prices will tank as well.
“That’s going to lead to colleges going out of business,” he concluded.
At one time, going to college and getting a degree almost assured graduates a better life, but today college — again, due to the easy money — has become more of a business industry rather than a ticket to success.
Earlier this year, during his State of the Union speech, President Obama seemed oblivious to the bulging school loan bubble, now believed to be more than $1.2 trillion.
No real solutions from Obama, just easier access to school loans
“We’re shaking up our system of higher education to give parents more information, and colleges more incentives to offer better value, so that no middle-class kid is priced out of a college education,” he intoned.
His solution wasn’t to slow down the rate of borrowing, but instead slow down the rate of repayment to taxpayers.
“We’re offering millions the opportunity to cap their monthly student loan payments to 10 percent of their income, and I want to work with Congress to see how we can help even more Americans who feel trapped by student loan debt,” he said.
The previous level was 15 percent of income.
CNBC reported on the dire nature of the situation:
Although the economy has been improving, the student loan situation keeps getting worse, exacerbated by skyrocketing tuition and still-high youth unemployment. Outstanding student loans have approached $1.2 trillion, according to a May 2013 estimate by the Consumer Financial Protection Bureau, up from about $1 trillion at the end of 2011.