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U.S. student loan debt could contribute to lengthening housing slump

By Catholic Online (NEWS CONSORTIUM)
March 23rd, 2012
Catholic Online (www.catholic.org)

Student loan debt in the United States stands at a staggering $1 trillion. While many students take out these loans in the hopes of better paying jobs, the massive amount of debt they acquire prevents them from buying homes shortly after graduating, adding to the already stagnant housing recovery.

LOS ANGELES, CA (Catholic Online) - The Consumer Financial Protection Bureau is a federal agency created in the wake of the financial crisis. Bureaus officials say that the $1 trillion in student debt is roughly 16 percent higher than an estimate earlier this year by the Federal Reserve Bank of New York.

The new figure, released this week at a banking conference in Austin, Texas is a preliminary finding from a study of student debt the bureau will release this summer. Bureau officials said the estimate is based on a survey of private lenders, as opposed to other estimates that rely on a sampling of consumer credit reports.

Officials say student loan debt is rising for several reasons. Among them are an increase in Americans going to college to escape the weak labor market. Tuition increases, which many colleges say are needed to offset big cuts in state funding also has many students taking out bigger loans.

The interest costs on older loans are climbing as borrowers fall behind on payments, reflecting mounting financial strains. New York Fed data show that as many as one in four student borrowers who have begun repaying their education debts are behind on payments.

Most economists agree that college is an increasingly good investment because of the widening pay gap between jobs that require a degree and those that don't. The educational degrees and added skills are meant to help workers earn higher incomes that, in time, will more than offset the student debt.

As more people go to college and assume bigger loans for education, they may take longer than previous generations to hit key milestones such as buying a house or getting married, officials say. It could take longer for heavily indebted graduates to save money for a down payment on a home or to qualify for mortgages.

Rohit Chopra, student-loan ombudsman for the Consumer Financial Protection Bureau, said student debt could ultimately slow the recovery of the housing market. "First-time home-buyers are a substantial part of the housing market," Chopra said in a recent speech. "Instead of saving for a down payment, these borrowers are sending big payments every month."

Student debt is a burden not just for recent college graduates in their twenties, but also for parents who often co-sign their children's student loans, as well as midcareer professionals who opted to go back to school during the sluggish recovery.

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