Confronting the Sub-Prime Student Loan Crisis

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Confronting the Sub-Prime Student Loan Crisis
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Mortgage debt is only recently starting to rise again after years of deleveraging and credit card debt has continued to fall from its crisis era peak, but student loan debt is growing as if nothing ever happened, from less than half a trillion in 2006 to an estimated $1.2 trillion by the end of this year. We would probably already be staring down a serious asset bubble if normal financial principles applied, but they don’t.

In a recent Bipartisan Policy Center roundtable on the student debt crisis, Recap Real Estate Advisors chairman David A. Smith called the problem a subprime education crisis, where mismatched incentives and moral hazard give companies like SLM Corp (NASDAQ:SLM), better known as Sallie Mae, good reason to extend huge loans on overvalued assets to people who may never be able to pay them back – just like during the subprime housing crisis.

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