College Debt Isn’t a Bubble About to Burst – It’s Something Different
A new study by Fidelity found that 70% of the class of 2013 is graduating with an average of $35,000 in college-related debt. That includes federal, state and private loans, credit cards and debt owed to family.
Outstanding student loan debt in the United States has tripled in the last decade to more than $1 trillion. It is the second largest share of household debt after mortgages.
Some say that student loan debt, like the housing market, will be the next bubble to pop. The Federal Advisory Council recently warned the Federal Reserve that student debt “now exceeds credit-card outstandings and has parallels to the housing crisis.”
Related: The Five Biggest College Myths
Overdue student loans are now at a record high, with 11% of recent graduates seriously delinquent on payment. The U.S. Education Department found that nearly 30% of 20 to 24 year-olds aren’t employed or in school.
Robert Archibald, professor of economics at The College of William and Mary and co-author of Why Does College Cost So Much?, disagrees that the student loan market resembles a bubble.
Related: Only 150 of 3500 U.S. Colleges Are Worth the Investment: Former Secretary of Education
“I don’t understand the analogy [to a bubble] at all,” he tells The Daily Ticker’s Lauren Lyster. “A bubble is about a financial asset increasing unreasonably in value and people then recognizing it” he explains.
Archibald does not see the payoff of going to college falling dramatically. “It’s not like the price of an asset that can just do that, so I just don’t think the analogy works.”
Related: America’s Student Loan Crisis: Generation I.O.U.
“I think too many people look at the value of college for those first couple of years out especially when they’re paying their student loans” says Jeff Selingo, author of “College Unbound” and editor-at-large for The Chronicle of Higher Education. “We really have to look over the lifetime. There’s many different measures of this, but you’re going to make much more over the course of your lifetime if you have a college degree.”
While college debt may not be an asset bubble, it is a constant problem that can keep growing -- which is perhaps even scarier.
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