Student Loans--The Next Bubble?

Last week a friend of ours was looking over some application forms for college when she looked up and said, “We’ve had a ‘Tech Bubble’; we’ve had a ‘Housing Bubble’—the next bubble will be the student loan bubble.”
She’s thinking of going back to school and finishing the art degree she never quite got back in the 1970s. Along with sticker shock at tuition prices, she’s been both astonished and horrified at the nonchalance with which colleges assume she will be taking out thousands of dollars in student loans. It’s simply expected.
These loans are expected because, today, books alone cost more than tuition did when she started college in 1972. Parking fees alone at several area colleges equal what I paid in tuition when I started college in 1957. (My youngest son’s high school even charges for parking this year.)
College after college says, you get so much in direct scholarships (over the years this friend has maintained a 3.96 GPA), so much in work study, and the other ten, or fifteen or even twenty thousand a year will come in the form of loans.
This morning I had occasion to visit a local college campus. I overheard some students talking—very casually—about the thousands of dollars they had accumulated in loans. (This was at a relatively inexpensive state college.) I joined the conversation.
I mentioned my son who has gone back to graduate school. When he started three years ago, his job prospects looked very bright. Now, as he finishes his course, those prospects have dried up. There isn’t a job in his field this side of the Arab oil states—if there’s one there.
He’s slated to be done in June. He owes thousands—which, three years ago, he assumed he could nicely pay back with the job he was expecting. Six months after his last class, job or no job, the clock runs out and he must start paying back those loans—with substantial interest.
His best option seems to be to take out another loan, return to school in the fall, and put off the evil day of repayment for another year. I mentioned this situation to the students I was chatting with. “Yes,” one of them said, “my brother is in his seventh years at the University of Michigan.
“He’s caught In the same bind.” The only problem with his temporary solution of taking more classes to avoid repayment is that this just accumulates more debt. When the clock does run out, he will have far more to repay than he ever planned on.
Just like in the real estate boom days, people took out big mortgages imagining that raises would come automatically and paying off the mortgage would be easy. When the bottom dropped out, that assumption proved to be grievously faulty.
How many kids are in the same bind my son is—or the brother of the student I talked to this morning? What happens if many of them stay in school for another year, racking up more debt, and then NEVER find the expected, high paying job with which to repay.
What happens when they need to buy transportation, pay high rent and start supporting themselves—all after servicing that huge student loan debt? What happens if enough of them simply cannot do it?
What do the banks do that cannot collect on all of these lovely student loans they so willingly (just like mortgages) pushed on tens of thousands of kids all over the country? Do we have another debt/credit crunch? Who bails out this one?
My acquaintance may or may not be proven correct—but it is certainly something worth watching out for over the next few years.
It’s nothing I hear them worrying—or even talking—about in Washington or on the financial pages. But they were telling us before the last two bubbles popped that something fundamental had changed in the market. It hadn’t then—has it now?