Moody’s: Student Loans Next “Bubble” to Burst

In a recent report from Moody’s, the credit rating agency airs concerns that weak hiring prospects cannot cope with the increasing number of graduates – all of them expected to pay off their debts in short time or face exorbitant interest rates.

“[T]here is increasing concern that many students may be getting their loans for the wrong reasons, or that borrowers — and lenders — have unrealistic expectations of borrowers’ future earnings,” says the report.

Moody’s backs this up by citing significant rises in the amount of money being borrowed over the past two years. For-profit schools have also grown rapidly over the recent years despite having notoriously low graduation rates and steep fees. 15% of all adults under the age of 24 are unemployed, making timely debt repayment even more difficult.

In addition, federal education cuts and weak college endowment growth force schools to hike their tuition rates and limit in-house money for scholarships.

If the crash of the subprime mortgage market triggered America’s recession back in 2008, then unemployed college grads carrying huge student loan debts could bring about the next big crash – especially when student loan debt has outpaced credit card debt.

College and other student loan debt cannot be eliminated by bankruptcy, making them especially dangerous forms of debt for those who are unprepared for them.

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Harold writes about Australian News and actively participating in a News Community.