The History

In 2008, the housing market crashed. Years of predatory lending practices, insufficient regulations, and soaring home prices came to a screeching halt when millions of Americans’ mortgage costs surged and droves of accounts went into default. With countless mortgage accounts going unpaid at the same time, the banks were suddenly short billions of dollars. Some banks went under. Others were saved by the federal government in the form of a $700 billion bailout.

While hundreds of thousands of financial sector jobs were suddenly eliminated and the stock market took a nosedive, most bank executives kept their jobs and high salaries due to the influx of government cash. But the most crushing impact of the housing market crash was that the jobs market fell right behind it.

Everyone was feeling squeezed by the economic downturn. Many companies had to downsize or shutter completely. The number of well-paying jobs plummeted, meaning that folks who had lost their homes were also in danger of losing their jobs - or not being able to find one in the first place.

For students completing their education in or around 2008, this set of circumstances severely impacted their ability to jump into their careers and grow their financial portfolios. In a U.S. Department of Education study, students who graduated at the onset of the Great Recession reported significant hardship. Due to the bills associated with their education, 38 percent reported delaying buying a home, 22 percent delayed getting married, 29 percent delayed having children, and 35 percent indicated that they worked more hours than they would like. One out of three respondents indicated they felt unable to balance work and family, and also felt like their jobs were not secure. Even more participants indicated that they felt their compensation was substandard.

Unsurprisingly, student loan defaults increased by 18.9 percent during the Great Recession. Studies would later show that falling home prices hammered the jobs market, which in turn provided students less equity and liquidity. In essence, the housing market crash caused a chain reaction, putting pressure on almost every aspect of our economy.

But thankfully, the government realized that they had to stem the flow of increasing student loan defaults. First, the Student Aid and Fiscal Responsibility Act was introduced, which formally allowed the federal government to loan directly to students without contracting private financial institutions. New income-based repayment plans were introduced such as Pay As You Earn, which reduced the percentage of monthly income that had to be contributed and shortened the repayment period from 25 to 20 years.

Studies indicated that the new IBR standards reduced the number of defaults and insulated student loans from housing market fluctuations. While the economy has slowly recovered over the past decade, student loans continue to be a growing problem for the American citizenry.