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The real moral hazard is ignoring the student debt cataclysm and its effect on the economy

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05.05.2019

As the ranks of Democratic Party 2020 presidential hopefuls continue to swell and Trump’s chaotic lawlessness proliferates it’s easy to miss a deepening crisis that’s already taking a toll on millions of households and is about to get much worse.

It has metastasized way beyond a talking point on a candidate’s laundry list. Left unaddressed it will consign generations to poverty, further accelerate wealth and income disparity and knee-cap the nation’s economic prospects as even fewer adults can afford to form a family.

Student debt that was at $521 billion in 2006, has now spiked to $1.57 trillion, more than a 200 percent increase. That puts it second only to the nation’s aggregate mortgage debt and a half-trillion more than America’s total credit card bill.

According to the Urban Institute, every fiscal quarter another 250,000 student borrowers see their loans go into default, that’s one million a year. Currently, 11.5 percent of the nation’s student loans are in default but the Urban Institute is projecting by 2023, in just four years, that default rate will approach a near catastrophic 40 percent.

A college loan default becomes even more ruinous when the student drops out before getting a degree. Currently, 56 percent of students drop-out by year six. At that point, a young adult life is economically underwater since dropouts earn 35 percent less, that’s an average $21,000 less a year, than their classmates that persevered to graduation are earning.

In many ways, this deepening crisis builds on the Great Recession when Americans lost $20 trillion in household wealth. That erosion of an economic foundation that had taken generations to build and its harvesting by Wall Street was most keenly felt by African-Americans.

Now, the data shows there is an aftershock in the form of the looming tsunami of student debt defaults that will hit communities of color the hardest, according to data compiled by the National Center for Education Statistics and Demos, a progressive think tank.

“Not only are students of color more likely to borrow more for a degree, and borrow in higher amounts for the same degree, but they’re more likely to struggle to repay student loans than white students,” Mark Huelsman, a senior........

© Salon