The $1.2 trillion national student loan debt is holding back many people from potentially purchasing homes and starting a household, which is also at the same time hurting the overall economy, says the Consumer Financial Protection Bureau (CFPB) in a new report released Wednesday.
CFPB director Richard Cordray said in a statement that part of the reason why student loan debt is growing rapidly is because tuition rates are soaring. This in turn is creating an increase in the default rate – the CFPB estimates that approximately seven million Americans are defaulting on more than $100 billion in loans.
For those who decide to default on their student loans at a young age will forever endure a black mark on their credit scores, which then diminishes their chances of buying home, acquiring a car loan and being able to access credit.
“I believe we are standing at a precipice when it comes to student loan debt in this country. That load has reached $1.2 trillion, second only to mortgages as a category of consumer finance. This burden is growing fast and the issues that flow from it are central to public policy in America,” averred Cordray in a statement. “The domino effect of student loan debt is real, and it is spreading. It is hard to erase this debt quickly – paying it back may take many long years and prevent people from achieving other financial milestones.”
According to a study released by the Department of Education, the federal student loan default rate declined to 13.7 percent. The rate, which was measured during a period of the first three years that borrowers are mandated to pay their loans, was down from 14.7 percent at the same time last year.
John Burns Consulting published a report (via the Los Angeles Times) this week that found nearly half a million home sales will not take place this year because of student loan debt. This figure is equal to roughly eight percent of all home sales. In total, student loan debt will impact the housing market by about $83 billion per year.
“We actually think it’s pretty conservative,” said Rick Palacios, director of research at John Burns Consulting. “We’re only looking at people age 20 to 40. We know there’s a big chunk of households over age 40 who have student debt, too.”
These findings – from the aforementioned institutions – apply to other data compiled by the Federal Reserve Bank of New York that discovered young people with student loan debt are likely to maintain a mortgage than those who never attended college, a finding that has completely reversed the long-term trend.
Of course, the problem of student loan debt isn’t just confined to millennials – those born after 1980. As we reported earlier this month, Baby Boomers are also suffering from the shackles of student loan debt as seniors 65 and older owe the federal government an estimated $18 billion either because of their own personal loan or for taking out a student loan for a family member.
FICO, a financial services consulting company, reports that the average student loan debt is $27,253 per person.