After the housing bubble and its subsequent financial crisis in 2008, experts are warning that student debts will be the next big headache for the US. The student loan debt is estimated to hit an astounding $1 trillion by end 2011, overtaking even the entire credit card debt.
Student loans have grown by over 500% since 1999 dwarfing even the household debt which Lead to the start of a worldwide credit crisis.
“Delinquency and failure rates will rise in coming years because many students will be unable to service their loans as income growth falls short of borrowers' expectations”, says a Moody’s report
US unemployment rates are at 9% after being at around 4% in 2001.
So what we have here is a situation where the Students load on debt, finish studies and struggle to find employment which will pay off the debt and their living expenses. Hence, it should not come as a big surprise that many graduates are finding it hard to repay their loans in the current economic climate.
For the student debt crisis to be averted, the US has to grow exponentially in the next 5 years compared to the past 5 years which looks a daunting task when one considers that US government borrowings have increased to over 100% GDP.
Add to the woes the fact that inflation rate is creeping up month after month, year after year.
With increasing National debt, declining GDP and rising inflation, the student loan crisis, when it does happen, will hurt the US economy in a way never before in its history.