The 2008-2009 financial crisis was largely started by the housing bubble. Mortgage loans were being given out like candy, a situation that created the housing-market bubble. Due to several factors though, including increasing interest rates, the housing-market bubble popped. This is what ultimately became one of the main causes of the financial crisis.
Similarly to the housing market bubble, we are currently seeing a college loan bubble. Student loans are given out liberally, and often times the people taking on the loans are unaware of the interest they are being charged. The college loan bubble is continuously growing, but at some point, that bubble is going to pop. This will mean students will begin defaulting on their loans, build innumerable amounts of interest and declare bankruptcy. This could have a huge impact on our economy as well. When looking at the student debt crisis in these terms, it becomes obvious that this is an issue that must be taken care of — quickly.
People have proposed many different ways to fix the student debt crisis. One of the main ideas is to have Congress limit the amount of privatized loans a student can take out, and limit the interest rate those loans can have. Federal loans already have these parameters in place, but some argue that private loans having these same restrictions would limit the amount of debt students are able to rack up.
Other ideas to tackle student debt come from other countries. For example, some propose that the interest rate and payments on debt are directly proportional to the job a student has. This means that a postgraduate student will not fall behind on their payments due to a low-income job. Another idea proposes that all public schools will be tuition-free, meaning student loans will be a thing of the past. While this does seem incredible, it is a huge step for us to take as a nation.
Some of the other approaches to tackle student debt sprouted from Donald Trump’s campaign. One of his ideas is to shorten the time federal loans are forgiven. Currently, forgiveness occurs after 20 years, but the plan is to change that to just 15. Also, he aims consolidate all federal loans and eventually return all college loans to the private sector.
It is clear that there are many different ways to approach the student debt crisis. We are aware that a change is needed. Change comes slowly, though, and can be very hard when it is in regards to something so deeply ingrained into our society as college loans. When it comes down to it, though, a change must be made because the student loan bubble is growing every day. At some point, it is going to pop, and that could cause an economic dip. When this happens, it will not be just postgraduate students who are facing financial hardship, but rather it could be the entire nation.
Have something to add to this story? Comment below or join the discussion on Facebook.
Header image: Adobe Stock