Another report debunks comparison between student debt and mortgage loan crisis


A new report from The Vanguard Group disagrees with those who seek to draw comparisons between the current level of student debt and the level of mortgage debt that led to the housing crisis.

Titled “No bubble to burst: U.S. student debt is not housing,” the report found that student debt growth is too small to repeat the housing crisis of 2007-2009. According to the report, student debt in 2014 represents 7% of GDP whereas mortgage debt peaked to 62% of GDP in 2007. It also found that student loan asset-backed securities in 2014 represent less than 2.5% of total mortgage-backed securities in 2007. The report observes that unlike most mortgage loans, student loans are recourse loans (meaning borrowers “can’t walk away” from the debt).

The report also observes that to the extent student debt is creating any drag on the housing market, such drag should be compared with the positive housing demand associated with higher levels of education and, on average, income. The report asserts that in today’s increasingly competitive global economy, “one could argue not only that returns on greater education and skills attainment will remain high in the future, but also that they may in fact increase over time.”

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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