ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Is Student Loans The Next Bubble To Burst In America?

Updated on May 26, 2014

Now in the present, 2014, America is once again facing an economic collapse of another kind, resulting in a bad economy and unwise debts. Namely, the student loan debt bubble that is ready to burst at any time. A debt that rises by billions every year, as opportunities to pay it back are diminishing.

For many years, America has it made it possible for everyone to receiving student aid and grants by backing the loans and federally backing the debt. This makes it possible for even the poorest individuals to receive a higher education to hopefully get a better job. This however is becoming a problem. Since many, if not all of these subsidized and unsubsidized loans are not backed by any collateral, the default of this debt will be astronomical. There will be no homes to foreclose on and no recourse for many debtors to receive their money back. Many college students have yet to obtain any assets, so the only way to receive any money back will be by confiscating taxes or garnishing wages.

According to recent statistics in an issue of Forbes, more than half of student loans are in deferral or delinquency. Delinquency rates for federal loans made by the Department of Education in March of 2012, was 12.3%, whereas the private sector was ringing in at 5.3%. The deferral rate was at 43.5% as of March of this year for all student loans (Hardekopf, 2013).

The amount of student loan debt is now the second highest consumer debt held, just behind mortgages. The amount of student loan debt has sky rocketed and is now over 1.1 trillion dollars. Deferred loans amounts have reached 388 billion dollars, up by over 70% in the last five years. The average amount per student debt has also increased 30% in the last five years reaching over 23,000 dollars per student (Hardekopf).

A lot of the reasons why the per-student loan amount has grown so much is aptly, inflation from excessive money printing. As other cost increase, colleges are forced to raise tuition rates to try and make the same amount of profit as the years prior. Moreover, tuition has increased 104% in the public college sector and over 60% in the private sector in the last ten years respectively (Clark, 2012). Tuition is not the only thing that has went up for college students; room, board and books have also forced students to maximize their loans to pay for discretionary items as well as tuition. My online college has raised tuition rates three times in a little over two years, so going to college is just becoming more expensive.

Most would view a college education as the way out of debt, however more than half of recent college graduates are either unemployed or underemployed (Hardekopf, 2013). This is caused by a weakened economy that has still not recuperated from the mortgage collapse of 2008 where almost all publically owned investments dropped by over 40%. So a crushed economy with high unemployment and rising tuition has wreaked havoc on the newly graduated college students and default rates are close to the rates of the mortgage market prior to collapse.

Unlike mortgages that can in fact be foreclosed or even discharged by way of bankruptcy, student loans are a forever debt. This debt cannot be discharged ever and debtors can actually garnish your wages. Never in the history of the world, have such young consumers found themselves in the situation they find themselves in now. Debt has reached almost 140% of the average household’s income and all these student loans have just compounded the current economic situation.

To exacerbate the problem further for many college students, the ten year fixed rate of 3.4 percent is scheduled to rise to 6.8% in July at the start of the new federal school year. President Obama is urging congress to consider a new plan to keep interest rates locked at 2.9 percent for the life of the loan, however he will get rid of the cap on interest rates for those student that default. He also wants to focus more on work-study programs and make more stringent repayments for privatized loans, making government-backed loans more important (Nawaguna, 2013).

For those students that cannot manage the minimum payments and find themselves in default, President Obama has started a few programs to try and help. A student could try to rehabilitate the loan after the student and the Department of Education agree on a payment time and amount. This will basically refinances the loan by a private lender and any collection fees will then be added to the balance. The real benefit of this is to get the status of the loan pulled out of default, where the garnishments will stop and more options are open to the student (FSA, 2013).

Some of these benefits are forbearance, eventually loan forgiveness (after 30 years), deferment options, as well as the ability to receive more student aid from the federal government. It also releases the default status on the student’s credit report and the with-holding of any taxes due from the IRS. Although there are a few more options for students than there were even a few years ago, many economist believe that these efforts are simply too little, too late (FSA, 2013).

Some may argue that we have once again, extended the hand of credit to those who really can’t afford it and we are going to once again pay the price for that mistake. The student loan debt has also been repackaged into government bonds and once again, Americans will hold the majority of this debt, without actually knowing they do. Many Americans may be surprised to know that their 401K and retirement funds may be heavily holding these bad debt instruments. If what happened before happens again, Americans can expect another economic collapse, as well as taking a huge hit to their investments and even savings as inflation will surely occur.


Clark, K. (2012, March). College tuition, other costs climb again this year - Oct. 24, 2012. Retrieved May 31, 2013, from

FSA (2013, February). Getting out of Default | Federal Student Aid. Retrieved May 2013, from

Hardekofe, B. (2013, February). More Than Half Of Student Loans Are Now In Deferral Or Delinquent - Forbes. Retrieved May 31, 2013, from

Nawaguna, E. (2013, May). Obama pushes to hold down student loan interest rates| Reuters. Retrieved May 2013, from

Do you have student loans?

See results


    0 of 8192 characters used
    Post Comment


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)