Moody's Warns Student Loans May Be The Next Financial Bubble To Burst

WASHINGTON -- Record borrowing by college students who are graduating without jobs may lead to the next financial crisis, according to a recent report by Moody's Analytics. "The long-run outlook for student lending and borrowers remains worrisome," concluded the report, which came out in July.

"Unlike other segments of the consumer credit economy, student loans have not demonstrated much improvement in performance despite some improvement in the broader economy....[T]here is increasing concern that many students may be getting their loans for the wrong reasons, or that borrowers -- and lenders -- have unrealistic expectations of borrowers' future earnings."The Moody's report points to the fact that student loan volume growth, unlike other lending, has accelerated during the recession.This is due in part to people seeking more education and retraining as well as some students opting to remain in college longer to avoid poor job prospects.The report indicated that in addition to college enrollment tripling over the past four decades, "demand [for student loans] is driven by the cost of education, which has grown at an extraordinary rate over the past three decades." Based on Consumer Price Index data, the cost of tuition and fees has more than doubled since 2000, and has outpaced inflation across all goods, health care, housing and energy.Student lending has also increased due to state governments making cuts to their public education institutions, causing colleges to raise tuition.Further, college endowments have recovered slowly throughout the economic downtown, forcing schools to increase tuition and limiting the amount of in-house money for scholarship use.For-profit schools, which haveВ much lower graduation ratesВ than traditional colleges, have also grown rapidly.Youth unemploymentВ among those under the age of 24 has been much higher than the rest of the workforce -- creating an even more pessimistic outlook for student loan repayment.In the U.S., it was over 15 percent for the first quarter of 2011, and is similarly problematic around the world.