Over a Trillion Dollars of Student Loans on the Brink; Fall-Out Could Be Enormous
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The borrowers of this other $1.1-trillion debt are far more likely to default on their obligations: students, particularly those who went to for-profit colleges. The global consequences could be — and likely will be — staggering…
These loans leave many students entrenched in a permanent underclass. When they default — and they are defaulting in record numbers — the ripple effects spread from shore to shore, and beyond. They have no money to see movies, buy health insurance or, sometimes, even put dinner on the table. And when this many Americans are facing debt they can’t afford, businesses suffer from lower demand, tax revenues decline, and lenders face enormous losses.
This should sound eerily familiar. The situation is not unlike America’s recent housing crisis. In both cases, loans were doled out without regard to credit risks, and borrowers took on substantial debt they could not afford. Years of irresponsible, predatory lending finally caught up with mortgage issuers when homeowners lost their jobs and could not afford to repay their mortgages with interest rates that averaged 6.5%.
Now imagine the economic calamity if those mortgage interest rates had doubled to 13%. That’s the dire situation faced by unemployed and underemployed former students, who have neither steady jobs nor savings to cover tens of thousands of dollars in loans that seem to grow exponentially. We all know what happened to the housing market. Student loans are not far behind.
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