The growth of student-loan amount looks very much like the increase of mortgage debt before the housing bubble burst. But the financial experts are sure it will not have the same result.
Student Loan Debt and Analysts’ Attention
Taking into consideration the consequences of the financial bubble burst in the housing market, no wonder the attentive analysts try to see the signs of the next smoking gun.
The most interesting area drawing the expert attention nowadays is student loan amount. The debt for higher education purposes is exceeding $1 trillion dollars already and a great number of students have the debt of $50,000 and even $100,000. On average one in eight loans today is already delinquent, as the borrowers are unable to cover them at present.
The situation over the student loan debt has already raised the discussion whether the modern education worth the cost paid for it. Besides, the students are more often viewed as a potential threat, which can drive the economy into a new stage of recession.
- Mistakes college students make with their loan refund checks.
- Save money in college and repay the student loan.
- Ways to get rid of student loan debt.
Vanguard Group Research on the Matter
Still, the researcher of Vanguard Group Joseph Davis doesn’t see the student loans as a similar threat, even though confessing that not all is well. In the late July’s observation he emphases that the student debt amount is the only type of the loan that has risen since 2007 and even doubled during past few years. It’s so not like with quick consumer personal loans.
It’s not only the number of borrowers which increased, but the average loan balances which have skyrocketed. The situation becomes even more complicated due to high tuition costs and lack of job prospects for those who have just graduated. The most disturbing facts about the student debt is the rise in the loan delinquencies which has reached double digits already and the wide range of Americans burdened with educational debt that is around 40 million of citizens at present.
However, in the view of Davis, those are all similarities and the value of the loans as well as the growth of the debt are not so big as to result in a new bubble, like the mortgage crisis of 2007-2008.
“At 7 percent of U.S. gross domestic product, student debt outstanding is a fraction of the size of mortgage debt (relative to gross domestic product), which peaked in 2007 at 62 percent,” he wrote.
Mortgage Loans vs. Student Loans
Student debt is not so financially interdependent as it was with mortgages, and, besides, not a big number of education loans is sold to investors. Student loan is also a kind of loan the borrower can’t escape, while some states allowed the mortgage loan borrowers walk away from their obligations.
Additionally, the number of Americans having housing debt is much bigger than those having student loan to cover and the amount of borrowings and service payments for a mortgage are also sensitively higher, often soaking a large lump of monthly budget of a borrower. Consumers who get mortgage loans via Personal Money Service usually have no debt problems at all.
Still, Vanguard Group mentions that, even if the student loan bubble is not going to burst and result into the economy recession, it still hampers its growth, the debt for education often prevents young people from house purchase and in the course of 2008-2012 the demand in the housing market has dropped by 36,000 a year.
Learn more about various mortgages, terms and other here.
College Degree Pays Off
The studies of various companies prove that college graduates have higher lifetime income, and these results in the boost for housing demand in the course of the years and, consequently, the economic consumption in general. The average college graduates’ earnings often twice as much as the incomes of high-school graduates ($80,000, compared to $40,000) and the unemployment rate among them is twice as lower (4.2 %, compared to 8.9%). The degree holders often have better work benefits, experience less stress from their job and have better health.
Even young people with some college but without a degree earn on average somewhat closer to high-school graduates, though the majority of them have certain student loan to cover.
The Pew report states that most college graduates believe their investment in education was still worth it, even taking the debt into consideration.
“On virtually every measure of economic well-being and career attainment — from personal earnings to job satisfaction to the share employed full time — young college graduates are outperforming their peers with less education,” the Pew report said.