Monday, September 05, 2016

Looking for the next debt bubble

The Chicago Tribune reports:
As of June 30, total household indebtedness was $12.29 trillion, 10.2 percent above the recent low of 2013, but 3.1 percent below the peak seen in 2008. But not all debt is created equal. In fact, every time the Federal Reserve Bank of New York releases its quarterly report on household debt, various media outlets report on the findings with scary headlines suggesting that a new bubble has inflated around a different type of debt, and that bubble is about to burst.

The most obvious candidate for the next bubble is student loan debt, which has ballooned to $1.26 trillion. To put that in perspective, federal student loan asset levels stayed at about $100 billion from 1995 to 2010, but as college costs soared, more families turned to debt to finance their coveted degrees. That's why the total amount of education debt has soared.

The large outstanding balance would not be such a big problem if everyone who took out a loan completed his or her studies and then got a job, allowing for adequate servicing of the loans. But that has not been the case, especially after the recession and weak recovery. As the Wall Street Journal reported in April, more than 40 percent of Americans who borrowed from the government's main student loan program are either not making payments or are behind in making payments. As of the beginning of this year, about 3.6 million borrowers were in default on $56 billion in student debt, and another 3 million who owe $66 billion were at least a month behind.
Just a reminder, for you rookies out there.