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Student loans may be next bubble to burst

Jan 28, 2011 Brian Bradley

Housing and auto loans had a significant cause-and-effect relationship with the recession, but one prominent institution warns of another potential bubble burst in the future. The National Inflation Association has stated that consumers and governing bodies should be wary of a potential collapse of the student loan market. The NIA also warned that the burst could come as soon as the middle of 2011, creating damaging effects that surpass the resulting losses from the collapse of the real estate lending market over the last few years. As a warning to prospective college students, the NIA advised that those seeking student loans should be cautious about rates, commitments and whether or not the loans make sense for their financial future. With median home prices down nearly 26 percent since 2006 and the average annual price for a four-year college standing at $22,218 - up 4.6 percent since 2006 - the NIA believes the combination of such data will lead to significant value reduction in the student loan market. According to the U.S. Department of Education, the student loan default rate increased to an average of 7 percent by September 2010.