Next Asset Bubble Burst
Chris Moon
April 26, 2013
FE442 Assignment #2 –The Next Asset Bubble Burst
I believe that the next asset bubble burst will be the higher education industry pertaining to student loans. As college tuition continues to increase at an exponentially faster rate than inflation, many potential students are left with two possible options, to take out student loans or not go to college at all. Even though student loans are supposed to be worth it because of the high paying jobs that students will get after they graduate will pay off the debt, however due to the recent economic downturn, it is difficult for recent college grads to get a job. Because of all of these conditions, student loan default rates will continue to rise, eventually creating this bubble burst, which can possibly have a worse effect than the recent 2008 global recession. Student loan debt is considered an asset under the balance sheet of college institutions, and as of recently, total federal student loan debt just hit one trillion dollars and continues to rise. Originally, student loans were implemented while colleges believed that their education would produce our future’s household-income workers that would be eligible to pay these student loans back overtime. This would have been feasible if not for the two following conditions in our modern day college institutions: the repercussions of the ongoing increasing tuition and those who are benefitting from this cost increase. It is a well-known fact that tuition has always been increasing at a faster rate than inflation and household income, but I believe increasing default rates for student loans is another indicator of the possible bubble burst. As tuition and fees for both private and public colleges rose 4.2% and 5.6% respectively, the consolidated budget lifetime default rate, which measures the anticipated default rates over a student loan that is within a twenty-year period, have increased to 25% this year from a 17.9% from last year.
April 26, 2013
FE442 Assignment #2 –The Next Asset Bubble Burst
I believe that the next asset bubble burst will be the higher education industry pertaining to student loans. As college tuition continues to increase at an exponentially faster rate than inflation, many potential students are left with two possible options, to take out student loans or not go to college at all. Even though student loans are supposed to be worth it because of the high paying jobs that students will get after they graduate will pay off the debt, however due to the recent economic downturn, it is difficult for recent college grads to get a job. Because of all of these conditions, student loan default rates will continue to rise, eventually creating this bubble burst, which can possibly have a worse effect than the recent 2008 global recession. Student loan debt is considered an asset under the balance sheet of college institutions, and as of recently, total federal student loan debt just hit one trillion dollars and continues to rise. Originally, student loans were implemented while colleges believed that their education would produce our future’s household-income workers that would be eligible to pay these student loans back overtime. This would have been feasible if not for the two following conditions in our modern day college institutions: the repercussions of the ongoing increasing tuition and those who are benefitting from this cost increase. It is a well-known fact that tuition has always been increasing at a faster rate than inflation and household income, but I believe increasing default rates for student loans is another indicator of the possible bubble burst. As tuition and fees for both private and public colleges rose 4.2% and 5.6% respectively, the consolidated budget lifetime default rate, which measures the anticipated default rates over a student loan that is within a twenty-year period, have increased to 25% this year from a 17.9% from last year.