The Wall Street Journal recently reviewed the ways low income families are impacted by the US credit crunch. In addition to consumer purchases, The WSJ points to student loan debt as a major factor -- sometimes the largest -- in the composition of individual debt portfolios.

Excerpt from: http://online.wsj.com/article/SB125511860883676713...

"We saw an extension of credit to a much deeper socioeconomic level, and they got access to the same credit instruments as middle-class and mainstream Americans," says Ronald Mann, a Columbia University law professor. Now, "it will be harder for families at the bottom of the income ladder to get credit cards," he says.

The financial crisis has forced lenders to be especially cautious with the riskiest borrowers, a category that low-income families often fall into because their debt tends to be higher relative to income and assets. The ratio of credit-card debt to income is 50% higher for the lowest two-fifths of Americans by income than for the top two-fifths, Federal Reserve data show.

Although the tone of the article tends to focus on young people and their consumer behaviors, there is also a glimpse at a much more troubling problem.

Treasury Secretary Timothy Geithner, testifying before Congress in July, said: "We now know that millions of Americans were...unable to evaluate the risks associated with borrowing to support the purchase of a home, a car or an education."

Student Loan Bubble is curious to hear more about Geithner's perspective on the inability of Americans to evaluate risk, and if this can be remedied by better information, better financial education, different regulation, or perhaps something else entirely.

Education is an excellent vehicle for elevating one's socioeconomic status, but The WSJ has identified a major issue for those in greatest need of elevation: disproportionate debt levels, coupled with the previously unheard of suggestion that education might be a risky investment.

After watching the trailer for Default: the Student Loan Documentary, I eagerly anticipate the general release of this film, which focuses on the personal stories of students who have been affected by educational debt. Although there are strong political and financial overtones to the student loan bubble at large, it is important not to lose track of the actual people who will be most strongly impacted.

It is very common to read criticisms of students who have taken on more debt than they can handle, and if this film is able to speak to those criticisms, it will be a significant accomplishment. This challenge involves convincing a wide audience including people who dutifully paid all of their student loan debt, those who required no debt to begin with, those who compromised in order to avoid debt, and those who didn't go to school at all. With an audience like that, Default might be a very difficult sell.

The following trailer is about 5 minutes long.

Excerpt from: http://www.defaultmovie.com/?page_id=2

Default: The Student Loan Documentary is a feature-length documentary chronicling the stories of borrowers from different backgrounds affected by the private student lending industry and their struggles to change the system.

In 2005 private student loans were exempted of ALL consumer protections. No matter when their loans were taken, many borrowers now find themselves in a paralyzing predicament of repaying two, three or multiple times the original amount borrowed, with no bankruptcy protection, no cap on fees and penalties and no recourse to the law. The consequences are dire, with stories of borrowers in financial and emotional ruin.

Beyond these personal accounts, DEFAULT will explain the differences between federal and private student loans, a subject often overlooked by colleges and high school counselors. It will also give detail on the rise of the private lending industry and of college debt.

While the media has focused on the disaster that sub-prime mortgages have turned out to be, only superficial attention has been given to financial giants which have been profiting by approving loans to low-income students with variable interest rates up to 25%.

As The National Consumer Law Center concluded in their March 2008 report titled "Paying The Price: The High Cost of Private Student Loans and the Dangers for Student Borrowers", there are ominous signs that "the student loan market is headed for the same fate as the subprime mortgage industry."

Default is directed by Aurora Meneghello and produced by Serge Bakalian. Keep an eye on the official website, which is www.defaultmovie.com. Student Loan Bubble will keep you posted as this story develops.