The Student Loan Time Bomb: A Decade to Disaster?
Before we get started, I have a friend that wrote a book. Buy it here <3
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TLDR
- Student Loans are one of the many mechanisms used to entrap and to enslave. Humans do it best. Whatever the original intention was, it's no longer the case.
- Do not get stuck in a cycle of hopelessness. This bubble will force many borrowers into a desperate cycle of damaged credit, limited opportunities, and economic turmoil, leaving little hope for anything better.
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The Student Loan Time Bomb: A Decade to Disaster?
- John Jolissaint
The American dream of attaining higher education has become a treacherous path paved with a staggering burden of student loan debt. With outstanding student loan debt surpassing a jaw-dropping $1.78 trillion as of 2023, a ticking time bomb looms over our financial landscape. Let's take a deeper dive into the factors leading to a potential bursting of the student loan bubble (the Biden pause has given us more time, but I'll still estimate that within the next decade or less, it'll happen), examining the profound impact it could have on borrowers, lenders, and the broader economy. Hold your children as we unravel the alarming truth and explore the urgent need for reform in the student loan system.
The Current State of Student Loans:
To understand the gravity of the situation, we must shine a spotlight on the current state. The system operates as a complex web of debt, trapping millions of students across the nation. Consider this: the average debt per student has surged to a staggering $38,792, an increase of over 170% in the past two decades. This inflation-outpacing growth of college tuition is fueling the mounting student loan bubble, leaving no choice but to question the sustainability of it all.
Why?
- Increasing Default Rates: Default rates on student loans are spiraling out of control. Approximately 10% of borrowers are currently in default, representing over 7 million individuals who are drowning in debt and unable to make repayments. If this trend continues, it could result in a catastrophic loss of over $170 billion for lenders, sending shockwaves through the entire financial system. (I guess you'll just die? You know it's near impossible to get rid of student loans?)
- Escalating Student Loan Debt: The trajectory of student loan debt is reaching astronomical heights. In the past two decades alone, student loan debt has skyrocketed by a staggering 500%. It now surpasses credit card debt and auto loan debt combined, solidifying its status as the second-largest consumer debt category. This alarming growth poses a clear and present danger, threatening to destabilize the very foundations of our financial system.
- Economic Instability: The fragile economic landscape further compounds the risks associated with the student loan bubble. With unemployment rates reaching unprecedented levels during the recent global crisis, many borrowers find themselves trapped in a vicious cycle of unemployment and loan repayments. Wage stagnation exacerbates the situation, making it increasingly difficult for borrowers to meet their obligations. Inflation erodes the value of their earnings, further hindering their ability to escape the clutches of debt. The convergence of these economic factors creates the perfect storm that could ignite the student loan bubble, plunging our nation into a financial abyss.
- Policy Changes: The decisions made by policymakers have a profound impact on the student loan bubble. While proposals for widespread loan forgiveness may provide temporary relief, they also come at a cost. Forgiving $50,000 in student loan debt per borrower, for instance, would amount to a staggering $1 trillion burden on taxpayers (allegedly). Alternatively, policies that increase the burden on borrowers, such as removing bankruptcy protections, further compound their financial distress. Striking the right balance between relief measures and responsible lending practices is paramount to avert disaster.
The Potential Impact:
The burst will unleash a cataclysmic chain of events that will reverberate throughout society.
- Impact on Borrowers: Damaged credit scores would cripple their ability to secure future loans, be it for purchasing a home or starting a business. The weight of student loan debt would shackle their dreams and aspirations, stifling their ability to save, invest, and contribute to economic growth. With over 45 million Americans burdened by student loan debt, the consequences would be felt far and wide, leaving an indelible scar on an entire generation.
- Impact on Lenders: Lenders, too, would bear the brunt of this catastrophic burst. A sudden surge in defaults would result in staggering losses, pushing financial institutions to the brink. Just as the subprime mortgage crisis devastated banks and financial markets, a student loan bubble burst could inflict severe damage on lenders, potentially triggering a domino effect that ripples across the entire financial landscape. (Part of me wants to encourage mass default.)
- Impact on the Broader Economy: The aftershocks will be felt across the economy. Consumer spending, the lifeblood of economic growth, will nosedive as borrowers tighten their belts and redirect their limited resources towards servicing their student loan debt (once you find out that bankruptcy won't even rid you of your loans. Leave the country, or die.) Reduced consumer spending will send shockwaves through businesses, leading to layoffs and stagnating job growth. The consequences will likely cascade into a recession, derailing the progress made in rebuilding our economy and widening the wealth gap.
Parallels with the Subprime Mortgage Crisis:
To fully comprehend the magnitude of the impending disaster, we must draw parallels with the subprime mortgage crisis that rocked the world in 2008. In both scenarios, the unchecked growth of debt, fueled by loose lending practices, laid the foundation for an unprecedented financial catastrophe. We really are that stupid. Cycles.
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As much as I love to watch the world burn. It's painful to watch.
The time for action is now. The student loan crisis demands our unwavering attention and bold reforms. We envision a future where access to higher education is not marred by insurmountable debt, where borrowers can pursue their dreams without sacrificing their financial well-being, and where the broader economy thrives on a foundation of stability and opportunity.
Policymakers, educators, and citizens must unite to reshape the landscape of higher education financing. We must advocate for comprehensive reforms, such as income-driven repayment plans, targeted loan forgiveness programs, and responsible lending practices. Only by addressing the root causes of the student loan crisis can we defuse the time bomb ticking beneath our nation's prosperity.
We can forge a path where education becomes an empowering force, not a catalyst for financial disaster.
Or not. Fuck it. I'll watch with you.
