Student debt has been thought to be the next crash, but I'm not sure how unless the laws change. It's not dischargable in bankruptcy so it's not like you can walk away.
It's the next crash through a different vector - if the loans aren't dischargable, a large portion of the the economic activity that young people normally generate as they grow along their career path is now siphoned off to repaying loans. That's a low value use of the money to the rest of the economy. Maybe it doesn't end in a dramatic crash but an economic stagnation for as long as inflation is low (inflation being a side channel way of devaluing those loans...).
We can already see this in the US economy. Millenials are largely putting off traditional milestones like marriage, car ownership, having children, saving for retirement (or saving at all) and home ownership for lack of capital.
These are pretty major drivers of consumption, but think about the second order effects: fewer home pools being built, fewer new auto parts needed, fewer childrens clothes being bought, fewer weddings to need DJs, etc. There's quite a bit of fallout there, and it's going to be hard to pin John and Son's pool construction company going tits up on student loan debt slowing the economy, even if it's the case.
Student loan debt won't create a crash, it has just been an enormous brake on the US economy for almost a decade now and we've grown so used to its effects that we don't really notice it anymore.
Imagine how many young people would start a company or take a risky-but-educational job except that they need the liquidity and stability to make a student loan payment every month? You could get living expenses close to zero by living with your parents for a while, but student loan payments require you to have some cash coming from somewhere each month.
>You could get living expenses close to zero by living with your parents for a while, but student loan payments require you to have some cash coming from somewhere each month.
Not with federal student loans. They have income based repayment plans. If you have no income, you don't pay. After 20 years the debt is forgiven.
Unfortunately the cap on maximum borrowing with federal student loans is quite low compared to the total cost of many colleges, so there's lots of private loans that come due six months after graduation and don't really care what your income level is -- they just want to be paid.
That's true. But of the total student loan debt of $1.2 trillion, and $1 trillion is federal student loan debt. Private loans are a comparatively small problem.
WOW, thank you for posting this. That is astounding and I had no idea it was that magnitude when I wrote my previous post. If anyone wants a source, the $1 trillion number is from the federal Consumer Financial Protection Bureau[1] and CFPB has even made available a detailed breakdown of the federal government's student loan portfolios[2]
For federal loans (private loans are hard to get these days) the law is actually very reasonable.
You pay 10% of your (Income - 150% of poverty level). That's less than 10% of your income. And nearly zero for a lot of people. You pay it for 20 years and they wipe out the debt.
One huge problem is that people don't sign up for this system or instead just default. It's shocking that so many college graduates are sticking their head in the sand. It's a simple process. I've done it twice.
Eventually, creditors might write it off, but the borrower would be liable if they ever return to the US.
Also, given how annoying it is for international banks to work with US expats, I can't imagine they would look past that kind of dent in credit history.
An interesting note: http://www.npr.org/sections/money/2015/09/05/437628996/episo...