Economists warn of a student loan bubble - Dallas News |

Economists warn of a student loan bubble

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More students than ever are trying to wait out the poor economy and it is costing them millions – money they may never be able to pay back.

A nonprofit project on student debt in Oakland, Calif. found two-thirds of college seniors in 2010 graduated with loans compared with fewer than half of students in 1993. Total debt loans have also been rising about 5 percent a year, with the average graduate now the hook for more than $25,000.

Christopher O'Reilly, for example, graduated from Hampton University, a small private college in Virginia, in 2009 with a political science degree. He's now getting his masters at Southern Methodist University's Perkins School of Theology. He's carrying about $100,000 in student loan debt.

"When I graduated I wanted to go to law school," he said. "It's a bit of a burden, but I just keep smiling and just keep pressing."

Economists believe O'Reilly is among the millions of students who may be part of a new student loan bubble, leaving college and failing to find a good paying job in the sluggish economy.

"We have another debt crisis similar to what we've seen in real estate in recent years," said Bud Weinstein, an SMU economics professor. "This is becoming a big issue."

Since roughly 2008, federal and state governments slashed student aid leading to bigger demand for loans. That was met by fast, easy money from lenders as tuition skyrocketed. Financial aid offices are still full.

"The ones that concern me are the people who always come in, always take the very maximum amount they can get," said Karen Krause, who works in financial aid at the University of Texas in Arlington. "I'm not sure they're really understanding the consequences."

Sophomore Raymond Correa studies to be an aerospace engineer. He said he tried to be conservative but still figures he'll end up about $40,000 in debt.

"It's always in the back of my mind. You have to keep thinking ahead. Maybe I need another alternative plan," the 22-year-old said. "It does seem overwhelming."

As for O'Reilly, he admits he's scared but it's not going to change his plans for the future.

"That's a lot of money and I feel as though I'll be paying it back for the rest of my life. But again, it's a dream that I have so I'm gonna pursue it," he said.

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