The For Loan Debt Crisis - 1308 Words

Many economist view this current student loan issue in the same realm as the home mortgage crisis. In 2008 The mortgage crisis put the American economy into the biggest recession it had seen since the â€Å"Great Depression†. An economist by the name of John T. Harvey is highly regarded for his work in economics. Harvey attended the University of Tennessee, where he received a doctorates degree in economics and political science, and has now taken on the role as a Professor of Economics at Texas Christian University. Harvey wrote an article published on Forbes.com titled â€Å"Student Loan Debt Crisis†, where he breaks down the main intricacies of student loan debt. Harvey starts by discussing the comparison between student loan debt and the†¦show more content†¦This means ninety percent are making their payments on time. Harvey also points to how the government backs most of the loans, he states, â€Å"the government supports 95% of student loans, meaning tha t the private sector is protected from direct economic fallout in a way that was not true in the subprime crisis. Last and perhaps most important, we don’t have financial institutions enthusiastically creating assets derived from pools of student loans (especially the riskiest ones) that are then traded on the stock market, thus making their value vulnerable to sudden and violent changes of opinion.† The final statement Harvey inquired about is exactly why this student loan debt crisis should be put into perspective. The mortgage crisis had so many cracks in its foundation that it was simply bound to collapse. Banks were making risky loans, but did not care since they knew they were just going to resell the loan to another bank. The loans were then pooled together and received securitization through an intermediary institution. The intermediary would then organize these loans into tranches and aach tranche would then undergo a shaky ratings process where it would receiv e a rating based on the risk. Where all of this went wrong is these intermediary institutions would then pool all the low rated tranches and get them re-assesed where the pools now received a higher rating due to it being a watered down pool of loans. These loans turned into a hot potato where the