Moody’s Sounds the Alarm on Student Borrowing ( Next Panic ! )
I ran that thesis—shaped by data that show the default rate for student loans (two-thirds of which are guaranteed by the government) have steadily increased over the last decade—by Kantrowitz last year.
“You can’t flip an education,” he told me. In other words, higher education can’t be a bubble because there’s no speculation. Howard Horton of the New England College of Business and Finance was on the fence in 2009 about the higher ed bubble, but when demand for college degrees increased during the recession, Horton suggested that the college industry had more in common with Detroit than the housing crisis.
“These subsidies are kind of like propping up the auto industry with cash for clunkers, or the housing industry with cash for first-time buyers,” he told me last year. “We have this financial aid system that is keeping the system alive.”
Moody's new report has a much grimmer take: While "delinquency and loss rates on outstanding student loan balances remained steady throughout the recessions," the report reads, "the performance of other consumer loan segments has significantly improved as the economy has recovered." But that's likely to change soon, and not for the better. Moody’s projects that delinquency and default rates will actually get worse, even if the economy recovers in the next few years (itself an increasingly unlikely prospect)..