The Student Loan Bubble Looks Awfully Like the Housing Crisis, Top Bankers Say

By Alec Liu

The US’s tepid economic recovery could become derailed by yet another bubble. This time it’s student loans, warned the Federal Advisory Council, a group of a dozen bankers who meet quarterly to advise the central bank. Guess what? It smells suspiciously like the housing crash that precipitated the Great Recession only half a decade ago.

The Federal Advisory Council noted that recent growth pushed student-loan debt levels to almost $1 trillion, which “now exceeds credit-card outstandings and has parallels to the housing crisis” Bloomberg News obtained documents last week of the February meetings through Freedom of Information Act requests. The trend has only continued. The Consumer Financial Protection Bureau reported in March that student debt had now topped a record $1 trillion.

If it all sounds eerily familiar, it should, with the council griping over “significant growth of subsidized lending in pursuit of a social good.” In an effort to prop up yet another American myth — this time, the idealization of higher education instead of homeownership — the government is fueling a bubble that could undermine the already battered American Dream.

And it is a myth, just like the idea that everyone should own a home is an economically favorable proposition. In fact, high levels of homeownership can actually kill jobs, according to a recent study. The same could be said about going to college. Now, to be perfectly clear, this is by no means an indictment of the college experience, which, debt or no debt, remains the straightforward path for any enterprising person looking to move up in the world, no matter what Peter Thiel tells you. College graduates have better navigated the recession versus their less educated peers. But problems arise when the net is cast too wide and too frivolously, where students are shepherded towards unbearable burdens without enough consideration as to how that investment might pay off, simply because the current climate makes it so easy. Lenders don’t care because it’s the government that’s on the hook. And kids may be less discerning because, well hey, they’re kids.

An investment of over $40,000 a year so you can do keg stands, chase tail, and make questionable life decisions while pursuing a degree in Business Administration provides a wildly uncertain return at best. We know the job market is tough, especially for fresh grads (unless you’re some kind of programming prodigy). And while the cost of tuition continues its unstoppable rise, we’ve officially entered the era of the unpaid internship. While a college education is no longer a guarantee of a good life, it can guarantee unwieldy debt.

Read more: http://motherboard.vice.com/blog/the-student-loan-bubble-looks-awfully-like-the-housing-crisis-bankers-warn-fed#ixzz2TEEa3D8t 
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