S&P says student loan debt could be next financial bubble

Student-loan debt may become the next U.S. asset bubble as rising tuition costs climb while household income stagnates, Standard & Poor’s said.

Colleges and universities have been struggling with declining endowments and lower state funding at the same time students are facing an inability to repay loans in a tough economy, the ratings company said today in a statement.

“Student-loan debt has ballooned and may turn into a bubble,” S&P said. “There are more defaults and downgrades for some student loan asset-backed securities.”

Federal and private student-loan debt is approaching $1 trillion and surpassed credit-card debt for the first time in 2010, according to Mark Kantrowitz, publisher of FinAid.org, a college grant and loan website. Under U.S. law, student-loan debt -- unlike credit-card borrowings -- can rarely be discharged in bankruptcy court.

President Barack Obama last month proposed linking federal aid to a college’s ability to control tuition costs. The plan calls for increasing campus-based aid only for schools that limit tuition-cost increases and penalizing those that don’t.