Tuesday, July 24, 2012

Link Between Student Loan Burden and Slow Housing Recovery

Rising student loan debt may be related to the slow recovery of the US housing market, according to a new article on Bloomberg.com.

Chief economist for Credit Suisse, Neal Soss, says:

“We are trying to migrate towards a much safer underwriting standard, with let’s say 20 percent down payments required. It takes a certain amount of time for people to save that up, and the more they’re burdened with student loans the less possible it is for them to accumulate that chunk of liquid capital that allows them to make that.”

The key point is that students laden with college loan debt and flat salaries will have more difficulty meeting this 20% standard. The Bloomberg article furnishes fresh numbers on total student loan debt ($904B) and the average debt per student ($25,250); these numbers show that the student loan debt crisis is far from abating.

Soss notes that it's not clear how strong the link is.  But what is clear is that a greater debt burden placed on our young people, early in their careers, can have dire consequences for their financial position much later in life.  We now see very attractive mortgage rates tied to extremely low bond yields depressed by short-term Eurozone instability; for many Americans, right now is a great opportunity to secure an attractive home loan. It's a shame that so many young people will miss out on the opportunity to invest in what promises to be a robust housing recovery, due to other debt obligations.

Here is a link to the Bloomberg article:

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