Rising Student Loan Debt Hampers Housing Market

March 5, 2013

Young home buyers are making up their smallest share in the housing market in more than a decade, and a new report blames it on rising student loan debt.

Outstanding student loan debt nationwide stands at nearly $1 trillion owed. That massive amount of debt is making it increasingly difficult for a large number of new buyers — particularly young college graduates — to qualify for a mortgage in buying a home, according to a new report from the New York Federal Reserve.

About 17 percent of 40 million student loan borrowers are delinquent on their payments by 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," says one of the author’s of the report, Donghoon Lee, a senior economist for the New York Fed.

By late last year, slightly above 4 percent of 25- to 30-year olds with student debt were granted a mortgage. In 2005, that percentage stood at nearly 9 percent, according to report. 

"These are the people you'd expect to buy big houses," says 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."

The Consumer Financial Protection Bureau in February asked private lenders to find more options for student loan borrowers.

"They are increasingly concerned about the effect of student debt on household formation to see if there's anything they can do to thaw the marketplace," Mark Kantrowitz, publisher of the financial aid Web site Finaid.com, told CNBC.

Source: “How the Student Loan Debt Crisis Drags Down Home Prices,” CNBC (March 4, 2013)

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