Fitch, Moody´s, Standard and Poor's - the names of these credit
rating agencies make politicians and investors shiver. Standard and
Poor's decision to downgrade the excellent debt rating of U.S.
treasury has triggered a stock market rally downwards bringing back
memories of the 2008 financial crisis.
Moody's doubts on student loans
Christian deRitis, director at Moody's Analytics, now published
a report forecasting a dire future for student
loans. Numbers indicated that the student debt market could be the
next financial bubble to bust.
"The long-run outlook for student lending and borrowers remains
worrisome… There is increasing concern that many students may be
getting their loans for the wrong reasons, or that borrowers - and
lenders - have unrealistic expectations of borrowers' future
earnings," states deRitis in his report.
Mark Kantrowitz, financial aid expert and advisor prominent in
news and politics, estimated the average student debt to around
$27.200 at the beginning of 2011. A recent compromise on the debt ceiling, will raise
students' debt burden even more.
Rising tuition and crisis woes
Reasons why this bubble came about are manifold. For starters,
tuition fee costs have risen faster than any other goods or service
costs in North America. Since 2000, tuition costs have more than
doubled. Particularly low government support and plunging donations
made universities fill their income gap with increased tuition
Tuition vs. Other Price
Sources: BLS, Moody's
Surprisingly, the trend towards a ballooning student loan market
has not stopped during the financial crisis. Private consumers for
instance started borrowing less money due to fears of not being
able to pay it back.
Tuition loans do not follow this logic. Rather the opposite
applies. Students are afraid of becoming unemployed after
graduation and seek extra qualifications.
The rate of unemployment of under 24 year olds lies at around
15% in 2011. This is still relatively low compared to the EU
average of 20,5%. Given the higher debt burden, however, it is more
urgent than ever for graduates to find employment .
Student Loan Balances Keep
Sources: Equifax, Moody's