Two looks at how student debt will slow US growth
When people in financial markets look at student debt, they often focus on the financialization of it. Who holds it, the servicing costs, the potential for defaults.
There's an obsession with seeing the parallels to how the housing crisis because a financial crisis.
US student debt is different. It can't be discharged in bankruptcy in most cases, so the debt is inherently safer. There are also federal guarantees that make it far different.
The problem isn't going to be a 'crisis' in the way that some kind of tipping point where it blows up. Instead, it will simply doom people to years, if not a lifetime, of debt servicing. Consumers will be poorer and the economy weaker.
It's already well underway. Here's a chart from Axios that compares what people spent money on in 1988-89 compared to 2015-2016.
We should celebrate less drinking and smoking but a good portion of that is likely captured by prescription drugs in the healthcare category. Reading is likely a quirk because so many books are free now.
But imagine if all the money spent on education, healthcare and rent was flat and the rest of that went towards disposable income? We would be talking about a much richer country.
In a related story in the New York Times today, Ben Miller digs deeper into default rates and shows that tracking data showing jumps in default rates and nearly one-third of borrowers struggling to pay.
The higher education system is completely broken but there's no help on the horizon.