The Student Loan Bubble

Source : Wall Street Journal

   Today, I will explore the economic principle that institutions are the "rules of the game" that influence choices. In the article "America's Student Loan Debt Crisis is About to Get Much Worse" by Bloomberg, the author shines light on the drastically growing rate of student loan debt in the United States and how nearly all college students are starting their working lives in five figure debt. 

According to the article, "Student loans have seen almost 157 percent in cumulative growth over the past 11 years". This is astounding when noted that credit card and mortgage debt has fallen 1% over the time. This is relevant information because it shows that student loans have gotten out of control in the country, and many graduates are left with six figure debt to pay off as soon as they leave school. When compared to mortgage and credit card debt, the fact that student loan debt has skyrocketed spells trouble for other debt rates, because if people can't pay off their student loans then they for sure will not be able to pay off other debts. 

When people don't pay their student loans, they face delinquency on them. This is an issue that will affect banks also, because if people can't find jobs that pay enough of their loan off, they will just not pay the balance. If enough people do this, banks that gave these loans will face issues as they will not be getting the money that they originally gave away. While people who won't pay their loans will face bad credit scores and diminished purchasing power, the bank will also face financial crisis. Both these events would cause a severe economic downturn, and it would prevent future generations from having positive financial situations in their adult life.