The mid-2000s saw the United States economy experience a housing bubble burst. Now, there is great concern that another bubble might burst: that of student loans. Dr. Alessio Lidozzi explains and demonstrates what policies have lead to these economic issues, including risky mortgages and government-backed loans. This slideshow will be informational for anyone who wants to understand either of these situations and consider potential solutions for the future.

1. THE HOUSING BUBBLE
REINCARNATED
The Student Loan Bubble
by Dr. Alessio Lidozzi

2. Question:
Is the United States’ student loan debt bubble headed
towards the same burst that the housing bubble
experienced in the last ten years?

3. In an interview with CNBC, Mark Cuban echoed a widespread
sentiment that there is virtually no difference in the two bubbles.

4. THE HOUSING BUBBLE
Many will remember how the United
States government took a big turn in
mortgage lending in the mid-1990s,
telling government-backed firms Fannie
Mae and Freddie Mac that 40% of their
loans had to go to low-income
borrowers. On top of this requirement,
the government issued tax breaks and
the Federal Reserve dropped interest
rates to historically low levels,
increasing the “affordability” of these
mortgages.

5. THE HOUSING BUBBLE
Because the government was essentially
taking on the risk for the housing loans,
mortgage lenders were not cautioned by
the potential risk of these low-income
borrowers defaulting and approved
loans to more people than ever before.
This surge in funds caused housing
prices to skyrocket, which then increased
the size of the mortgages being issued
and made it more difficult for low-income
borrowers to pay off debt or spend their
money anywhere else. The rest is history.

6. THE EDUCATION BUBBLE
Student loans are headed in the same direction,
perhaps to a more debilitating end. To put things in
perspective: home prices rose 400% in the last 40
years…

7. THE EDUCATION BUBBLE
In the same time span, the price of a private education
has launched into orbit, increasing by over 1,000%.

8. THE LOGIC
The argument is that the two
bubbles are the same because the
government’s policy to provide
low-interest loans to students
increases tuition just as housing
loans wound up increasing the
price of a home. If students’
purchasing power is crippled by
onerous debt, they cannot
participate in the economy, which
effectively holds it back.

9. PROBLEMS.
Another problem is that these increased tuitions serve the
administration of a university rather than the quality of
education. It’s for the same reason that the donation of a wing or
building serves little to no philanthropic purpose: the
administration feels a release from the pressure to use school
funds to recruit better faculty or invest in more resources for
students.

10. PROBLEMS.
Instead, the administration winds up reallocating the
funds to themselves, another enormous issue. As
Cuban said, you know there’s something not quite
right when there are more administrators than
professors pulling in over $200k per year.

11. SOLUTION?
A potential solution to this problem would be to put a limit
on the amount of the loan guaranteed by the government.
!
However, any trade off at the expense of greater access to
higher education will certainly be a difficult one to
promote.

12. THANK YOU FOR VIEWING!
To Learn more about Alessio Lidozzi, please visit
!
AlessioLidozzi.com