Moody's: Student Loans May Be Next Financial Crisis

Record student loans with no jobs in sight equals another financial crisis.

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Student loans may be next financial crisis. (Thinkstock)

Tyler Kingkade of the Huffington Post is reporting that record borrowing by college students who are graduating without jobs may lead to the next financial crisis, according to a recent report by Moody's Analytics. "The long-run outlook for student lending and borrowers remains worrisome," concluded the report, which came out in July.

"Unlike other segments of the consumer credit economy, student loans have not demonstrated much improvement in performance despite some improvement in the broader economy ... [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."

The Moody's report points to the fact that student loan volume growth, unlike other lending, has accelerated during the recession. This is due in part to people seeking more education and retraining, as well as some students opting to remain in college longer to avoid poor job prospects.

The report indicated that in addition to college enrollment tripling over the past four decades, "demand [for student loans] is driven by the cost of education, which has grown at an extraordinary rate over the past three decades." Based on Consumer Price Index data, the cost of tuition and fees has more than doubled since 2000 and has outpaced inflation across all goods, health care, housing and energy.

Government cuts to the budgets of public colleges and universities, increased tuition and endowments that have taken major hits in the economic downturn have all caused the need for increased student loans, which now outpace credit card debt.

We're wondering why the cost of tuition, room and board has outpaced inflation to such an extent that there is a need for more student loans. In 2008 Congress passed a bill that eventually became a law that put many measures in place to help control the price of tuition at colleges and universities. Is that law even being enforced? If not, why?

It is pretty bad when people are told to pursue higher education in order to get ahead in life, and it actually does the opposite. Something has to give -- more-reasonable tuition, better interest rates on student loans and of course more jobs. If something doesn't happen to address this issue, then students won't be the only folks in trouble.

Read more at the Huffington Post.

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