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The Student Loan Bubble Bursts

Written By Brian Hicks

Posted September 22, 2009

The end is nigh for private student lenders.

A growing number of people can no longer pay their mortgages, their credit cards, or even their car notes. And then there are nearly 250,000 student loan borrowers who can’t even afford to pay back their student loans.

. . . And I’m willing to bet that rate gaps even higher as we move forward.

Even those who can pay their monthly student loan bills are stretching the loans out for years, as depressed wages and a weak economy take toll.

No Job. . . No Money. . . No Student Loan Payments.

Nineteen percent of college students can find and secure a job these days, as compared to 50% in 2007 and 25% in 2008 — meaning there’s real trouble ahead for graduates who are competing in the toughest job market in years.

And according to the College Board in a report earlier this year, total student loan borrowing more than doubled between 1998 and 2008. We’re talking about $85 billion in loans, as compared to $41 billion ten years ago.

Privately-funded student loans have skyrocketed, too: from 7% in 1998 to 23% of all student loans in 2008. It makes for quite a brew for cash-strapped Americans this year, who are already saddled with unemployment and loss of income. Sallie Mae, for example, had a delinquency rate of 9.4% in Q3 2008 — compared to a rate of 8.5% just a year earlier.

The student loan market has been, is, and will be riddled with trouble. We expect to see higher default rates, as students cannot pay back these loans.

And now, Congress could push through the most dramatic overhaul of student lending practices ever.

Just last week, the House approved the Student Aid and Fiscal Responsibility Act that could eliminate the role of private lenders and establish the government as the sole lender of student loans. Basically, the government will seize control of student lending, kill off the private sector, and take on an enormous amount of student-loan debt.

Democrats claim the move will save $87 billion over ten years’ time, which would increase the maximum amount of Pell Grants, expand Perkins Loans, and invest in community colleges and other programs.

Still, the bill could have a rough ride through the Senate, where Obama will need 60 votes to prevent threats of filibuster.

And those in the student loan industry (where 35,000 jobs could be lost if the government seizes control of lending), aren’t giving up without a fight ahead of a Senate vote that could come this week. Would you believe the lenders are already putting themselves and their interests before the students’? They argue that cutting out the middle man (the banks) will take away an important revenue stream at a time when they’re already hurting. . .

This is part of the reason why the system needs an overhaul.

Good Investing,

Ian L. Cooper
Wealth Daily

P.S. We’re now putting the finishing touches on a detailed report that explains how higher education and the student loan industry are inflating a massive bubble — one that’s highly reminiscent of the housing bubble — and to profit from their demise. If you’re ready to begin taking these imminent gains, simply click on this link to get started right away.

P.P.S.  If you’re the parent of a college-bound student, you can learn many tips on how to pay for college without going broke at