Bubbles are very dangerous to a country’s economy. Everyone invests in these financially-tempting sectors as their values rise up dramatically. People take risks; pulling out loans and using derivatives to invest in these sectors.

Then all of a sudden, demand plummets for one reason or another. People start panicking as the sector loses its value in a very short period of time. Debts are unpaid, businesses fold up, workers are laid off, foreclosures are made and people end up without money again.

Sound familiar?

This is exactly what happened when the real estate bubble popped in ’08. It triggered a massive financial shockwave that shook the entire world as the majority of middle-class and low-income Americans found themselves in difficult times.

Even the high-income earners are affected by this slump, even if we don’t see them getting foreclosed upon and tossed out on the street.

And we are here doing it all over again with student loan debt. FICO released a report showing that consumers owe a whopping $750 billion in student loan debt, and that 67% of lenders believe delinquency in the form of payment defaults will increase.

If these college grads cannot pay their financial obligations because of unemployment or underemployment, then we’ll find the whole cycle of financial collapse start all over again.

What’s worse is that student debt cannot be discharged by bankruptcy which makes things worse – the payments and interests keep them weighed down and unable to move up in life.

This is why the National Association of Consumer Bankruptcy Attorneys is urging Congress to change bankruptcy laws and impose statutes of limitation on federal student loans, where loans can be forgiven after a set number of years.1

“…statutes of limitation apply to nearly all federal criminal actions. The rare exceptions exist for those crimes that are punishable by death, including espionage and treason, and now, student loan defaults” says NACBA.

References:

  1. Source: Student Loan Debt: Next Big Economic Shock []

Last updated: February 26, 2012 by & filed under Blog

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