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Mon, Sep 22, 2014

Experts: student loan debt weighing down housing market

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Experts: student loan debt weighing down housing market | Economy, Education, MTSU, Housing, Real Estate, Debt, Finance, Business, Murfreesboro, Tennessee, Rutherford County, Federal Reserve

In this Oct. 6, 2011 photo, Gan Golan, of Los Angeles, dressed as the “Master of Degrees,” holds a ball and chain representing his college loan debt, during Occupy DC activities. (Photo courtesy of National Public Radio)
With current outstanding student loan debt hovering at $983.5 billion and national unemployment rates topping 8 percent, the country’s housing market will continue to suffer, experts say.

In 2009, 41 percent of first-time, full-time MTSU students take out federal loans, for an average of $4,781 each, according to Slate.com a daily, online, general-interest publication offering analysis and commentary about politics, news, business, technology, and culture. One percent of the same students take out other loans, for an average of $7,542. In total, 43 percent of students take out an average of $4,866 in loans.

Additionally, 8.6 percent of MTSU students default on their loans within two years of beginning repayment. With a total enrollment of 25,188 in 2009, this translates to some 2,166 students.

If MTSU students keep up this borrowing trend for some eight semesters, they could graduate with a whopping $38,928 in student loan debt. Most of those students who land a job right out of college are going to earn a salary far less than the total average of their debt.

When considering housing options, of course they’re going to opt to lease.

Federal student loan debt outstanding reached approximately $665 billion and private student loan debt reached approximately $168 billion in June 2010, for a total student loan debt outstanding of $833 billion. Total student loan debt is increasing at a rate of about $2,853.88 per second.

Bob Willis, a writer for Bloomberg Businessweek, recently brought light to the effect of student loan debt on the housing market.

According to a recent Federal Reserve study, only 9 percent of 29 to 34 year olds got a first-time mortgage from 2009 to 2011, compared with 17 percent 10 years earlier. He quoted Fed Chairman Ben Bernake as having said, “First-time home buyers are typically an important source of incremental housing demand, so their smaller presence in the market affects house prices and construction quite broadly.”

“Recent college graduates carry an average debt load of more than $25,000, limiting their ability to qualify for mortgages even if they’re able to land a job in a market with an unemployment rate of 9 percent for 25 to 34 year olds,” Willis continues.

Total outstanding student loan debt exceeded total outstanding credit card debt for the first time in June 2010, according to FinAid.org, a student loan website. The seasonally adjusted figure for revolving credit in the Federal Reserve’s G.19 report (current report, historical data) was $826.5 billion in June 2010. (Credit card debt represents as much as 98 percent of revolving credit.) Revolving credit started declining in September 2008 when it reached a peak of $975.7 billion.

“The decrease is probably due a combination of higher minimum payments on credit cards, which were increased to 4 percent from 2 percent, lower credit card limits and tighter credit underwriting,” the website continues. “Student loan debt, on the other hand, as been growing steadily because need-based grants have not been keeping pace with increases in college costs.”

A white paper released by the Federal Reserve Board to Congress on Jan. 4 suggests that any trouble with growing student loan debt is like a loaded shotgun to the U.S. economy, reported Brian O’Connell in a recent MainStreet.com article.

He pointed out, “Not coincidentally, that age group (29 to 34 year olds) is at the front of the line for those drowning in debt from student loans (especially graduate school students and those who have left graduate school), fueled by the apparently unstoppable increase in tuition fees at schools around the country.”

Additionally, the Fed paper adds that banks are only lending to “qualified” borrowers, and would-be homeowners, with excessive student loan debt, aren’t high on their approval list.

“That leaves younger consumers locked out of the mortgage market and forces them into rentals, which takes away a historic linchpin of the entry-level housing market,” O’Connell continued.

That, in turn, reduces demand for “starter homes” and leaves homeowners who want to move on and buy bigger, more expensive homes to house their growing families in a bind – they want to sell their starter homes, but with young consumers boxed out, fewer people are able to buy them.

“That’s all a roundabout way of saying higher student loan debt is a warning sign not just for the credit health of college grads, but for the economy as a whole as well,” O’Connell states.
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