Bernanke says student debt no threat to U.S. financial system

By Svea Herbst-Bayliss and Ross Kerber

BOSTON (Reuters) - Ben Bernanke, who as Federal Reserve chairman steered the United States through its worst financial crisis in modern times, said on Tuesday that ballooning U.S. student loans do not pose the same threat to the financial system as housing loans did.

"The student loan situation is a risk, but a different kind of risk," Bernanke said, when asked how dangerous the roughly $1.2 trillion in student loan debt is. "It is not going to destabilize the financial system." He spoke at a Greater Boston Chamber of Commerce breakfast.

Student loans are mostly backed by the government while mortgages, which sparked the 2008 financial crisis, was held by publicly traded financial institutions susceptible to panic.

Bernanke, the former Federal Reserve chairman, is the latest among investors, political candidates and former policymakers to weigh in amid worries that student loans may develop into the next bubble that threatens financial stability.

Saddled with debt that can sometimes run into the hundreds of thousands of dollars, many college grads can only get low-paying jobs and are forced to move back home, postponing marriage and buying their own homes.

"Ninety-seven percent of loans are made by the government, not banks. So it is a fiscal issue and an issue for students who have debt because it affects their ability to buy houses and cars," Bernanke said.

While Bernanke, who ended his eight years as Fed chairman in 2014, said it was a good thing that students can borrow to finance an education that would have been out of reach years ago, he also acknowledged that some loans should not be made.

"We need better lending," and counseling for students taking out the loans, he said.

In a nod to parents around the country, Bernanke said his own children have taken out loans to go to medical school. "I assure you they have a substantial portion of the government's debt themselves," he said.

Bernanke traveled to Boston, where he earned his undergraduate degree from Harvard and doctorate in economics from the Massachusetts Institute of Technology, days after publishing his memoir "The Courage to Act."

(Editing by Jeffrey Benkoe)

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