Is there a student loan bubble?

Has the United States created an "education bubble" fueled by easy money and overborrowing by families desperate to pay rising tuition costs?

Expect a hastily sputtered "no way" from economists, university officials and student-lending specialists. They attach a high monetary value to academic degrees, no matter how fast tuition rises. As proof, they cite the big and growing income gap between college graduates and people with just a high-school degree.

But the student-loan market has been riddled with signs of trouble lately. Default rates are rising. Big-name lenders are pulling out or scaling back. And investors who used to snap up bonds backed by bundles of student loans have snapped their checkbooks shut.

Borrowing to pay for higher education may be a lot like mortgage-financed home ownership: a great idea that can be badly tarnished when financial markets lose all remnant of discipline.

The obvious casualties are the stock prices of companies that specialize in student lending. Shares of Nelnet Inc. and industry leader SLM Corp., also known as Sallie Mae, have fallen 40 percent or more in the past year.

Nor are the companies' executives offering much cheer in their quarterly conference calls with investors. Last month, SLM Chief Executive Al Lord described overall market conditions as a "train wreck." Jack Remondi, SLM's chief financial officer, added: "To say that the funding environment is difficult is a tremendous understatement."

Figuring out why student lenders are in such a pickle is a tricky task. Their business models are vulnerable to short-term capital-market gyrations, independent of the true economic value of education. The general seize-up in credit markets has made it harder for student-lending companies to raise money or refinance old lines of credit on favorable terms.

In addition, many lenders' profit margins were squeezed last autumn when Congress passed the College Cost Reduction Act. Among other things, the law shrank the subsidies student-loan issuers get on certain federally guaranteed loans.

Even so, it is a good time to ask whether something more profound is going on. Runaway college expenses are straining many families' borrowing capacity. While some families can handle the load, others are starting to look like homeowners who bought too much house for their budgets.

A key statistic to watch is the default rate on "private" student loans. These are the loans students or their families seek after exhausting borrowing limits for cheaper, federally guaranteed loans. The volume of private student loans has grown from almost nothing a decade ago to more than $17 billion in the 2006-07 academic year. (By comparison, federally guaranteed loan volume totaled $59.6 billion that year.) Private loans don't carry federal guarantees of repayment, so they generally come with higher interest rates. Think of them as the educational equivalent of a second mortgage. Borrowing rates typically range from 6 percent to 11 percent, compared wtih the 6 percent to 8 percent on federally guaranteed debt.

Over the past decade, with default rates looking minuscule, educational lenders scrambled to make private loans. All that momentum has collapsed.

Last month, Bank of America said it was getting out of the educational private loan market. Nelnet, which has only 1 percent of its portfolio in private loans, said last month that it isn't making any more such loans to hold on its books. Sallie Mae's private-loan losses last year were worse than expected, though it recently said that part of its portfolio has improved.

The private-loan snarls aren't just a headache for bankers.

Educational lenders have been warning for some time that their problems are bound to translate into higher borrowing costs for students. It's a matter of simple economics: if fewer lenders are competing for business in a market that's riskier than previously thought, they are sure to charge more for their loans.

What's more, cautions Sameer Gokhale, an analyst at Keefe Bruyette & Woods, even high interest rates might not attract new sources of capital to the market. That's because student loans don't have to be repaid until graduation or later. Any new entrant in the market would face years of watching its outstanding loans swell before repayments started coming in. Today's tight capital markets don't make that an appealing prospect.

Student-loan executives haven't been getting much sympathy for their plight. The larger mortgage debacle is commanding far more attention these days. But if the educational-lending market shakeout makes it harder for college students to borrow next fall, expect some much tougher looks at what's gone wrong -- and how to fix it.