Student Loan Debt Could Cause the Next Financial Crisis


Student loans may be a financial bubble that’s about to burst, warned Moody’s Analytics in a report released in July.  As students graduate with greater debt and fewer job prospects, these “speculative” loans, which are based on the expectation that an investment in education will enable the student to repay his or her debt, are increasingly dangerous.  The average 2011 college graduate carries $27,000 in debt, and that number is only likely to increase as tuitions rise and states slash funding for colleges and universities.

“Unless students limit their debt burdens, choose  fields of study that are in demand, and successfully complete their degrees on time, they will find themselves in worse financial positions and unable to earn the projected income that justified taking out their loans in the first place,” Moody’s warned.

This certainly contradicts the mantra that I heard throughout college: study what you love, and you’ll be able to find a job afterward.  That’s how I ended up majoring in Religion and Gender Studies, two fields that are not likely to make me a millionaire anytime soon.  But as a recent graduate, I can understand how difficult the job market would be to navigate if I carried as much debt as the average ex-student.  Living on an internship stipend would be much harder if, among rent, food and cell phone costs, I had a monthly debt payment to make.

The question is, what’s the solution?  I was able to graduate without debt because my university chooses to offer financial aid grants instead of loans.  But I know that I attended one of the few schools that kept this option open, even after the recession hit.  Andrew Hacker and Claudia Dreifus ask some difficult questions in a piece for The Chronicle of Higher Education, explaining that universities need to be more culpable for the choices that result in higher tuition costs.

“Claudia recently attended a faculty meeting at a well-known school where a series of expensive projects and a 5-percent tuition increase were announced,” they write. “Not a single professor rose to question those decisions, nor did anyone seem to give a thought to how their students would pay.”  Professors’ salaries, they add, have remained mostly untouched as tuition skyrockets.

But is it possible that some students are attending four-year colleges and racking up mountains of debt when they would rather attend two-year vocational schools?  The overwhelming emphasis on a liberal arts education may be blinding us to the fact that a) this education is becoming prohibitively expensive and b) some people do not benefit from such an education.  Massive cuts to vocational and technical schools could result in the same need to accrue debt.

A less educated workforce would place the United States at an undeniable disadvantage.  But that may be the result, if enough students graduate with massive debt that they can’t repay.

Related Stories:

College Students Turn to Sex Work to Pay Off Debt

Pell Grants Spared, Graduate Student Funding Cut in Debt Ceiling Deal

Post-College Debt Grows

Photo from stevendepolo via flickr.


ERIKA SOMLAI4 months ago


ERIKA SOMLAI4 months ago


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Laura Saxon
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That's terrible! Thanks for sharing.

Dee D.
Dolores D.3 years ago

The federal government needs to step in and give a helping hand to those who re in debt over a certain amount. They need to do something!