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The Great Student Debt Bubble

Debt.JPGBubbles always burst, but, as you will recall from childhood, the tough question is when they will do so. The NY Fed reports that U.S. households had $11.42 trillion in debt in the second quarter. That was down from a peak of $12.5 trillion in the third quarter of 2008, when the financial crisis took hold, and the lowest since the first quarter of 2007. Mortgage debt, home equity loans, credit card debt and auto loans are down sharply, but student loans are up. There was $550 billion in student debt outstanding in the second quarter, up 25% from $440 billion in the third quarter of 2008.

As we have reported previously, Princeton seems to be holding the line on tuition, but the other Ivies are behaving like they will be able to raise prices forever. If the housing market debâcle has taught us anything, we should have learned that it is not wise to bet on inexorable increases in pricing levels.

Addendum: With U.S. households now having a total debt of $11.42 trillion, and the national debt over $14.6 trillion, I have to wonder if our supposed prosperity over the past couple of decades was not just a debt-fueled party. A total debt of $26 trillion (about $87,000 per citizen and rising), should certainly be troubling to Dartmouth’s Sustainability Director and her soon-to-be-hired assistant, and everyone else in the world, too.

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