Government-Pumped Student Loan Bubble Sets Up Next Financial Crisis

Gold Silver Worlds

Presidential candidates Bernie Sanders and Elizabeth Warren are promising as much as $1.6 trillion in student debt forgiveness for millions of borrowers. Critics smell a cynical campaign ploy to try to buy the youth vote.

How is it either realistic or fair to declare an entire category of debt to be assumed by taxpayers?

Regardless, pie-in-the-sky proposals to cancel student debt shed light on a very down-to-earth problem for not only college students and recent graduates – but also for the economy and financial markets.

Student loans now rank as the second largest category of American consumer debt – bigger than credit cards, bigger than auto loans, and behind only mortgages.

Generation Z (composed of those now in their college years) faces the bleak prospect of crushing student loan debt combined with the crushing burden of more than $100 trillion in unfunded liabilities they will inherit from Uncle Sam.

No generation before has ever entered their prime working years with such enormous financial burdens. To make matters worse, they will enter their investing years with the stock market in extremely overvalued territory.

As the Baby Boomers head into retirement and begin steadily drawing wealth out of their IRA and 401(k) accounts, debt-saddled younger generations will likely lack the buying power to keep markets propped up.

Perhaps the Federal Reserve will step in as a “buyer of last resort” to keep debt and equity market bubbles from bursting. But it will take an unprecedent amount of buying (i.e., currency printing) to prevent another 2008-style (or worse) meltdown.

In the 2000s, the federal government, through the Community Reinvestment Act, started aggressively pushing banks to extend financing to “underserved communities.”

In practice, that meant lowering standards and pushing people better suited to renting into becoming holders of mortgages on overpriced properties.

In the 2010s, bureaucrats began aggressively pushing millions of people better suited to blue-collar work or trade schools into attending overpriced four-year colleges.

The U.S. government assumed near total control of the student loan market in 2010. It has issued $1 trillion of student loans since – many to people who have pursued economically worthless degrees in dubious subjects taught by leftist professors who care more about pushing their ideology than providing value to students.

As a consequence, more than 5 million “higher educated” Americans are now in default on their student loans. Millions more are foregoing things like home ownership and family formation because their bloated student loan payments are financially equivalent to having a mortgage.

A study by the Economic Policy Institute found that 54% of recent college graduates were either unemployed or employed in a job that doesn’t require a college degree.

Why College May No Longer Be a Good Investment

The government-subsidized student loan bubble has enabled college administrators to push tuitions and fees higher and higher on an accelerated slope, far outpacing overall price inflation.

The biggest growth in university hiring has been not for professors but for administrators who sit in offices and push paper or push social agendas.

Defenders of the traditional four-year college insist that it’s still a good investment. They …read more

Source:: Gold Silver Worlds