Study Shows Student Loans May Be Next Threat to Housing Recovery in U.S.

Posted On: February 6, 2015 under

presented by: Gary Massey
An article on discusses a study that reveals excessive student loan debt has a very negative effect on the U.S. housing market as young people are usually first-time home buyers. The recent housing crisis has made Americans more determined than ever to cut down their home mortgage debt, and though a Federal Reserve Bank of New York report states home owners are doing a good job, the next potential threat to housing recovery and the economy in general is college students struggling with their student loan obligations. The Federal Reserve report states that the total amount of student loan debt in the U.S. was $867 billion as of the fourth quarter in 2011, suggesting this growing debt is a “loaded shotgun to the U.S. economy.”
The study reports that banks are only lending money to qualified borrowers, meaning prospective homeowners with excessive student loan debt are not high on financial institutions’ approval list. This will likely leave young buyers forced to go into rentals and locked out of the mortgage market, which in turn reduces the demand for “starter homes.” Basically, homeowners with growing families who want to move into larger, higher priced homes, will be in a bind, as there will be fewer people left to buy starter homes because younger consumers are unable to get approved for loans. In short, if the student debt bomb detonates, a good chunk of the housing market may go with it.
The average amount of student loan debt is at $25,000, a number which is unfortunately always rising. In addition, approximately 39 percent of bankruptcy attorneys have seen potential student loan cases jump an astonishing 25 to 50 percent in the past three to four years, indicating that young consumers and would-be homeowners with high student loan debt may need professional assistance. The Chattanooga bankruptcy attorneys of Massey & Associates, P.C. have the experience needed to help anyone facing financial difficulties obtain a positive outcome so that they can have a stress- and debt-free future. For a free consultation, call (423) 697-4529.