Student loans played huge role in housing crisis

The housing slump is one of the culprits behind rising student loan debt, suggests an analysis of government data by the National Association of Home Builders.

The study reveals a shift in borrowing for higher education costs due to the housing crisis and the drop in home prices. As home prices dropped across the nation, homeowners found there was less availability of home equity loans, which traditionally were often used by parents to finance higher education costs of their children. As such, more students had to take out student loans on their own, the study notes.

“The rising student loan debt problem is another consequence of the housing downturn,” says Barry Rutenberg, NAHB chairman. “As more and more parents face tighter budget restraints as a result of lower home values, this is forcing an increasing number of students to take out loans for tuition, essentially shifting some of the burden of paying for college from parents to students.”

Outstanding student loan debt has risen 47.9 percent or by $293 million since the third quarter of 2008.

“The sharp rise in student loans is due to the end of accessible home equity loans, as a result of home price declines preceding, during and after the Great Recession,” the report notes.

The report continues that “this issue is once again a reminder of the importance of housing wealth for the middle class. When that wealth declines, or otherwise becomes inaccessible (as is the case with home equity loans), it causes significant changes for the economy as a whole.”