Parallels between the two crises
One of the after-effects of the financial crisis of 2007–2009 was the rise in the demand for student loans in the United States (SPY) (IWM) (QQQ). Consequently, the Consumer Financial Protection Bureau (or CFPB) was set up to regulate educational loans.
According to the CFPB, the current student debt situation resembles the sub-prime mortgage loan crisis that shook the economy and the global (ACWI) (VEU) financial markets in 2009. Seth Frotman, acting student loan ombudsman at CFPB, said, “We see a breakdown in student loan repayment eerily reminiscent of what we saw in the mortgage crisis.”
Let’s take a look at the areas in which there seems to be a parallel between the 2007–2009 sub-prime crisis and the current student debt situation.
However, the student debt situation shouldn’t impact the US economy to the extent the sub-prime crisis did in 2009.