We're heading into very treacherous times. There is now about $1.4 trillion in student debt, most of which is guaranteed by the U.S. government and a big chunk of it is likely to default in the coming years. When it does, the U.S. government will have to stand behind its guarantee. That will further blow the budget deficit and add to the national debt, in addition to deficit spending arising from the recent federal tax cut, the budget deal that will result in more defense and domestic spending, and the end of sequestration. The U.S. debt to GDP ratio will start to approach that of some the PIIGS countries in Europe.
I'm not holding my breath on Congress and the Fed acting to stop this. Meaningful reform would be too painful politically, and we've just seen that the Republicans are really no better than the Democrats when it comes to fiscal responsibility. The Republicans want to spend more on defense and the Democrats want to spend more on domestic programs, but they all want to spend more. Eventually there will be a price to be paid for the trillions of dollars of deficit spending that's taken place in recent decades, to say nothing of the off balance sheet promises that have been made by the government but will not be able to be kept, such as Medicare, Social Security, etc.