The other credit crisis

Education: Are student loans the next financial bubble to burst? | Mark Bergin

Associated Press/ Photo by Dan Gill

A rising fear among economic prognosticators supposes that the burst bubble of the housing market could prove a model for the collapse of another credit-based investment strategy on which millions of Americans are staking their financial futures: student loans. Ominous signs of instability loom: large lenders pulling out of the market, climbing default rates, squeamish investing in student-loan-based bonds.

For all the reports of a student loan squeeze, actual stories of squeezed students are difficult to find. Those tales of learn and loss could emerge in the coming weeks as first semester payments come due. But as yet, many colleges and universities are reporting record enrollment for the coming academic year.

What then is all the fuss about? Lauren Asher, vice president for the Project on Student Debt, believes most concerns stem from confusion about the distinction between federal and private loans. She confirms considerable tumult within the private student-loan sector but contends that such problems need not generate wide alarm since the federal sector, which accounts for about 90 percent of student loans, remains strong—even increasing its scope this year with legislation to raise the maximum amounts of annual financing.