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"The
student loan situation is a risk, but a different kind of risk,"
Bernanke said, when asked how dangerous the roughly $1.2
trillion in student loan debt is. "It is not going to
destabilize the financial system." He spoke at a Greater Boston
Chamber of Commerce breakfast.
Student loans are mostly backed by the government while
mortgages, which sparked the 2008 financial crisis, was held by
publicly traded financial institutions susceptible to panic.
Bernanke, the former Federal Reserve chairman, is the latest
among investors, political candidates and former policymakers to
weigh in amid worries that student loans may develop into the
next bubble that threatens financial stability.
Saddled with debt that can sometimes run into the hundreds of
thousands of dollars, many college grads can only get low-paying
jobs and are forced to move back home, postponing marriage and
buying their own homes.
"Ninety-seven percent of loans are made by the government, not
banks. So it is a fiscal issue and an issue for students who
have debt because it affects their ability to buy houses and
cars," Bernanke said.
While Bernanke, who ended his eight years as Fed chairman in
2014, said it was a good thing that students can borrow to
finance an education that would have been out of reach years
ago, he also acknowledged that some loans should not be made.
"We need better lending," and counseling for students taking out
the loans, he said.
In a nod to parents around the country, Bernanke said his own
children have taken out loans to go to medical school. "I assure
you they have a substantial portion of the government's debt
themselves," he said.
Bernanke traveled to Boston, where he earned his undergraduate
degree from Harvard and doctorate in economics from the
Massachusetts Institute of Technology, days after publishing his
memoir "The Courage to Act."
(Editing by Jeffrey Benkoe)
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