Q: Is the student-loan bubble similar to the housing bubble of 2008? Will it burst?
A: Many compare ballooning student-loan debt to the housing bubble and, seeing similar warning signs, fear it will burst.
"I think the analogy is just inappropriate," said Alex Field, a Palo Alto resident and chair of the Department of Economics at Santa Clara University. "In terms of the housing bubble as something that's going to collapse and threaten to bring down the U.S. and the world financial system, there's simply no way that the student loans pose any real threat to the banking system."
This is because the majority of student loans are government-backed, with private lenders holding about 15 percent of the $1 trillion total student debt in the United States. Banks are getting out of the game (most recently JP Morgan Chase in July), but that's because the elimination of the FFEL program in 2010 made the market less profitable for private lenders, Field said.
"In the case of the housing situation, there was a very substantial uptick in defaults, people who could not make their mortgage obligations. (Student-loan debt) doesn't really pose a direct threat to the private financial system, and because there's a law that says you can't discharge your loans through bankruptcy, it doesn't pose a particularly large threat to federal government. What it poses a threat to is peoples' well-being who emerge from college with significant amount of debt."
Q: What about the radical idea of forgiving all debt?
A: Some believe that the nation's debt crisis has grown so desperate that the only way out is to press the restart button. Bill Rose, a Menlo Park native and member of Strike Debt Bay Area, a debt resistance campaign, believes that all debt should be eliminated. Strike Debt Bay Area, an offshoot of the Occupy Movement, is about standing in solidarity with others who have debt (all kinds of debt, not just student loans) and demanding change.
"The aim is to have some kind of jubilee and some kind of debt forgiveness or force it by everybody collectively refusing to pay their debts," Rose said.
He himself owes about $22,000 from federal direct loans he took out during his undergraduate career at the University of California Santa Cruz and is currently making his minimum monthly payments.
"It's a systemic issue. To look at it as an individual -- you've signed your name on the line, so you're on the hook for it; you understood what was happening -- it puts the focus just on the individual and doesn't look at the system."
Rose said that total debt forgiveness is a high aim, but not impossible.
"It's happened before many times in history," he said, referencing successful debt jubilees where peasants, so deep in poverty they were selling their children into slavery, demanded and received debt forgiveness. (Debt cancellations did occur throughout history, such as in ancient Mesopotamia. Jubilee is also a biblical concept, a year dedicated to pardoning all sins and debt.)
Rose believes that many have lost sight of education as a public good. Instead of pushing generations into debt and deterring them from "possibilities for acting and doing what they desire," college should be free, Rose said.