S&P Warns Student Loans May Be The Next Bubble To Busrt in US Economy

Thought the mortgage crisis was a rough ride? Buckle up for the next financial crisis. Student-loan debt may be the next major U.S.-asset bubble to burst, according to Standard & Poor's.

The problem: colleges and universities are hamstrung with lower endowments, while students have increasingly lower prospects of ever paying back their loans. Student debt now outpaces credit-card debt, approaching $1 trillion for the first time. The Project on Student Debt found that in 2008, 67 percent of college students at four-year universities were graduating with student-loan debt. That number is even higher for students at private nonprofit and for-profit colleges and universities.

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Student Loan Delinquency Rate on the Rise

If you believe conventional wisdom, student loans are “good” debt: They’re safe, lead to higher incomes, and generally pay off in the long run. The problem is that an increasing amount of evidence is showing that this thinking is distinctly unwise. Student loan default rates are soaring, and now, according to new data from the Federal Reserve Bank of New York, the delinquency rate is also ticking up: 11.2% of student loans are currently more than 90 days past due, and that’s second only to credit cards, where 12.2% of accounts are past due. That makes the delinquency rates on student loans higher than mortgages, home equity loans, auto loans, and a mysterious “other” category.

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