The student debt bubble that has accumulated to the tune of $1.5 trillion is becoming a massive problem – and a problem that I don’t predict is going away anytime soon.
Rather, I feel the most likely scenario is that this pile of debt will have to eventually be monetized or bailed out by the government and that this will ultimately result in taxpayers once again having to bear the brunt of poor fiscal policy and poor decision-making by the Federal Reserve and the government.
(Photo credit: MarketWatch)
This much student debt has been allowed to rapidly accumulate because the government has been subsidizing and insuring it. The notion that people are entitled to a college education has dominated Washington DC over the course of the last decade and this has resulted in tons of loans being made available to students.
But rather than letting the free-market work, these subsidized loans do nothing but decrease competition, lower the quality of education for participants and encourage borrowing from people who may not have had the means or the willingness to take on student debt in the first place.
Much of this $1.5 trillion in student debt isn’t even being used primarily for school, as people are using their student loan money to pay off other debt and household expenses. Student debt remains extremely dangerous because much of it can’t be discharged during a bankruptcy - and so what the government has created here is a giant ticking time bomb of debt that is going to ruin the financial well-being of an entire generation over the next decade or so.
This bubble is going to have to be addressed at some point, sooner or later. Whether that comes in the form of common sense from our government trying to get out ahead of the issue (unlikely) or the more likely scenario, it catalyzing or being part of a financial catastrophe, the irresponsible levels of debt that this country has allowed to pour into student loans will undoubtedly cause chaos at some point in the near future.
In my latest podcast, I discussed this $1.5 trillion in debt, why it has grown so quickly and what I believe the coming consequences will be.
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