To hear President Obama preaching to college students at the University of North Carolina at Chapel Hill yesterday, it seems like the amount of debt America's college students are carrying is akin to the mortgage debt that sent the U.S. economy into a tailspin beginning in 2007.
"We paid more in student loans that we paid in our mortgage when we finally did buy a condo for the first 8 years of our marriage," Obama told the crowd Tuesday. "We were paying more in student loans than we were paying for our mortgage. So we know what this is about," he said, referring to his and his wife's past debts.
So how do the two debts compare?
Student loans pose a significant financial challenge for America, some economists say, but in a way that's different from the big buildup in mortgage debt that ended in a housing bust and deep recession."It's not a bubble that will burst," says Chris Christopher, an economist at IHS Global Insight in Lexington, Mass. "People still need to go to college.... The [financial] returns of education are still very vast." ...
Although the problem is large, the $1 trillion in student loans is only about one-tenth the scale of America's home mortgage debts. And fewer than 10 percent of recent graduates are defaulting on their federal loans, finance experts say. That means this isn't the kind of issue that's likely to cause a new recession or cause a fiscal crisis for the federal government.
That's the good news. The bad news?
The result is additional weakness in the economy. "People are delaying marriage," postponing having children, and taking a pass on home purchases, Mr. Christopher says. "They're living with their parents. They're not spending as much as they otherwise would have."
(The Wall Street Journal has more on that here)
The students sitting in the president's audience yesterday may have liked the sound of keeping their loan interest rates down, but in the end, it will do them little good -- thanks to the Obama economy, half of them will be unemployed when they graduate and will have no means of repaying those loans. And in pandering to the college crowd, Obama -- and Mitt Romney -- ignores the more grown-up issues at play here: an unsustainable entitlement system and the continuing rise in cost of higher education.
