Recent weeks have seen another spate of “bubble’’ headlines: student loan defaults up, tuition rising another 8.3 percent this year, and a new report estimating that average student debt for the class of 2010 has passed $25,000. All that on top of a multiyear slump in the job market.
So do those who warn of a bubble have a case?
The hard part, of course, is that a bubble is rarely apparent until it bursts. But the short answer is this: There are worrisome trends. A degree is an asset whose value can change over time. Borrowing to pay for it is risky, and borrowing is way up. The stakes are high. You can usually walk away from a house. Not so a student loan, which can’t even be discharged in a bankruptcy proceeding.
But there are important differences between a potential “student loan bubble’’ and an “education bubble.’’ Furthermore, many economists think the whole concept of a bubble is a misleading way to think about what is happening and may distract from real problems. College affordability is a serious issue, but it’s a different one. Borrowing for college and borrowing for, say, a house, are fundamentally different in important ways.
But there are some classic warning signs:
■Everybody wants in. The idea that higher education is the only way to get ahead has become widely held. College enrollment has surged one-third in a decade. College tuition and fees have more than doubled over that time, outstripping inflation.
■The volume of outstanding student loans is rising rapidly and now exceeds credit card debt, though recent reports of it crossing $1 trillion may be premature. Moody’s Analytics puts the number at $750 billion. Credit card debt is declining, but student loan debt keeps going up.
■Many student loans were made with little or no research into whether borrowers were fit. Federal Stafford loans are basically automatic for college students, and government backing for other types of loans gave other student lenders little reason to be picky.
■Defaults on federal student loans jumped to 8.8 percent from 7 percent in the most recent fiscal year.
