Cramer: The State of Student Loans

Bubbles seem to be bursting all across the economic landscape. First we had the housing bubble, then the automobile industry bubble, then came the credit card bubble. Pretty soon we're liable to have a "bubble" bubble, where our heads explode over all the financial fires popping up everywhere.

So it's with extreme caution that I broach the subject of one more economic bubble -- the student loan crisis. I know what you're thinking. "Cramer, we can't take any more bad financial news, especially about student loans. It's just too much!"

Well, you got the "too much" part right. Too much student loan debt coupled with too much financial stress is triggering a larger burden for student loan borrowers.

As usual, the numbers tell the story. According to the College Board, total student loan borrowing has more than doubled from 1998 to 2008. Now, it's $85 billion compared with $41 billion 10 years ago. The amount of privately funded student loans, which usually include higher interest rates and higher repayment amounts, have also risen over the same time period, from 7% in 1998 to 23% of all student loans in 2008. Meanwhile, The Wall Street Journal reports that subsidized federal aid is treading water at about $42.8 billion per year.

Those ingredients make for a witches' brew for cash-strapped borrowers in 2009. Saddled with debt, and facing layoffs and loss of income, student loan borrowers are falling behind. Sallie Mae (SLM) reported a delinquency rate of 9.4% in the third quarter of 2008, compared with 8.5% a year earlier. How much do you want to bet that gap continues to widen in 2009?