How the Student Loan Debt Crisis Drags Down Home Prices

confronting student loan debt
confronting student loan debt

By Paul O'Donnell

Pity the college graduate, burdened with shocking levels of student-loan debt and looking for a job in the worst employment market in two decades. But save a little pity for the rest of us. The staggering amount of outstanding student debt -- nearly $1 trillion owed -- is beginning to impede the U.S. economy as a whole, a new report from the New York Federal Reserve suggests. That's happening chiefly by robbing the housing market of its richest crop of new buyers: young college graduates.

The statistics in the report are dismaying in themselves. With the number of borrowers approaching 40 million nationally, including more than 40 percent of 25-year-olds, the average balance on their loans has risen to $25,000. About 6.7 million of all student borrowers, or 17 percent, are delinquent on their payments three months or more.

"Delinquent student loan borrowers have a very difficult time accessing credit, and the share of those borrowers is greater today than in the past," said Donghoon Lee, a senior economist for the New York Fed and one of the authors of the report. For the average homeowner, the worst news is that these over-leveraged and defaulting young borrowers no longer qualify for other kinds of loans -- particularly home loans. In 2005, nearly 9 percent of 25- to 30-year-olds with student debt were granted a mortgage. By late last year, that percentage, as an annual rate, was down to just above 4 percent.

The most precipitous drop was among those who owe $100,000 or more. New mortgages among these more deeply indebted borrowers have declined 10 percentage points, from above 16 percent in 2005 to a little more than 6 percent today. "These are the people you'd expect to buy big houses," said student loan expert Heather Jarvis. "They owe a lot because they have a lot of education. They have been through professional and graduate schools, but their payments are so significant, they have trouble getting a mortgage. They have mortgage-sized loans already."

Read the rest of this story on CNBC.

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The Student Debt Bomb - How Student Debt Loans Will Crush A Generation
The Student Debt Bomb - How Student Debt Loans Will Crush A Generation
Originally published