Day after day, politicians and regular citizens look for the next big economic threat. We had the crash of the Internet bubble, Enron trading debacle, and of course the mortgage crisis. So whats next?
Experts are saying the next big crisis is coming in the form of student loan debt. The amount of outstanding student loan debt has skyrocketed to $870 billion dollars, greater then the amount of credit card and auto loan debt in the country. And according to the Federal Reserve Bank, the amount of debt keeps going up month. In a resent meeting of the National association of consumer bankruptcy attorneys, it was characterized as a “student loan debt bomb” and “Americas next economic crisis”.
On March 20th before a US judiciary hearing, the Illinois Attorney General said that student debt was a large and growing threat to our economy. AG Madigan has recently used the power of her office to sue Westwood College, one of the many for-profit colleges operating in the country, for misleading students on the value of their degree. She sited massive current and former student backlash to the college’s marketing programs. Westwood disputed the validity of the Madigan’s case.
Unlike standard loans, private student loans are far less regulated and carry variable or extremely high interest rates with little protection for the borrower. At the same time, these loans are being masked behind more regulated government student loans, purposely confusing the consumer.
Dick Durbin, also from Illinois, has put for the Fairness for Struggling Students Act, which would add additional regulations to private lending, would also allow these loans to be removed during bankruptcy, something that is not possible under current law.
Several of the private lending institutions have shot back that such a law would hurt students by increasing their interest rates even further or reducing the amount of money available for prospective students.