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Stuck in an early hole: Student debt impedes lending
Mar 19, 2012, 9:59 AM | Updated: Mar 4, 2016, 5:56 am
The rising amount of student loan debt is a startling figure. But probably more startling is the effect it could have on the overall economy, Housing Wire reports.
“We should all be concerned about young Americans burdened by excessive student loan debt,” said Rohit Chopra, the student loan ombudsman, at the Consumer Financial Protection Bureau. “Every dollar of interest and fees is one less dollar to save up for milestones that aren’t just important to us as individuals, but for the entire economy. If the current trends persist, we’ll see few people able to reach their dream of buying a home, starting a family, and living a comfortable retirement.”
What are these “milestones”? A recent article in AOL’s Daily Finance describes the plight of overly indebted recent grads that are unable to qualify for mortgages. Even if the student lands a job that pays well, banks are still wary of giving mortgages to young people in a lot of debt and little work history.
This creates a toxic situation in a world where the average student graduates college with more than $25,000 in student loans and probably don’t have a job that pays well, given that unemployment for those aged 20-24 is double the national average, and 30 percent of those that are employed are working in a job that doesn’t even require a degree.
For now, it seems like those grads with big educations and equally big loan balances will have to stay in their rentals. The sad fact is, many grads won’t be very successful paying off those loans.
Figures from the U.S. Department of Education show that nearly 14 percent of student borrowers default within three years of making their first payment – an average that is skewed by the stunning 25 percent default rate of those that attended for-profit colleges. The rate 10.8 percent for those that attended public schools, and a lower 7.6 percent for those that attended private nonprofit schools.
Given those figures, it may not be surprising that banks aren’t willing to give mortgages to recent graduates. And tips like saving for a down payment and “doing what you can” to establish good credit are useful, they don’t address the needs of the 14 percent of borrowers who are having trouble just making payments on their student loans.
