The Problem Of The Student Loan Bubble - 990 Words

Education is the one of the most important foundational building blocks of our country, but recently has been creating instability for our society’s future. The student loan bubble is a huge problem and has been for quite some time. According to the Consumer Financial Protection Bureau (CFPB), there are approximately thirty seven million student loan borrowers with their student loan debt running over a trillion dollars collectively – nearly seven percent of the national debt, and a nervous jolt should be running down our spines. The college dream is turning into our worst nightmare. This bubble is thinning faster than ever before, with federal, private and other alternative lenders being the dry air that will soon make it pop. Why is†¦show more content†¦Next, you have private lenders that make education a risky investment for student borrowers. This is so for a few reasons. First, a recent trend for private lending institutions is their leniency for bor rowers attaining a private loan. Second, private lenders more often than not have high, non-negotiable interest rates. And third, private lenders have much less flexible repayment plans than federal lenders. Tuition is on the rise and federal loan caps are not budging leaving student borrowers with no other option but to look to private banks and institutions to help them fund their educations. Other alternatives have entered the market in recent years to provide student borrowers funding for college costs. A much less risky substitute is called Income Share Agreements (ISA). ISA’s are where a student contracts to pay an investor a fixed percentage of their income for an agreed number of years after graduation in return for funding college expenses. This type of investment shifts the â€Å"financial risk away from the Federal Government and students† to the investor. The lack of legal framework for this type of agreement causes uncertainty for borrowers and investors, making it an uncertain alternative. These three lenders all offer student borrowers different – some affordable, some not affordable – ways to fund higher education. The biggest problem they all pose, however, is they allow for collegeShow MoreRelatedRisks Of The Student Loan Bubble960 Words   |  4 PagesIntroduction/Overview I will be examining the risks of the student loan bubble. A bubble in financial terms regards to the rapid rise of asset prices that isn’t backed by fundamentals. This will eventually cause a large sell off leading to a sharp depletion in those asset values. Over the last 5 years the American federal reserve bank has increased spending on federal student loans over 1,000%. From $100 billion to over $1 trillion dollars. According to Kate Hardiman from University of Notre DameRead MoreThe Federal Reserve System And U.s. 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