Student loan debt helps stifle housing market
A generation of college grads, who owe more than $1 trillion, may have to postpone buying a home indefinitely.
The answer in almost every instance is more terrible than you can imagine. The Consumer Financial Protection Bureau says U.S. students have amassed $1.1 trillion in loan debt -- double what its was in 2007 and greater than any other consumer debt not tied to a mortgage.
Whether graduates have a "useless" degree in liberal arts or a "practical" degree like an MBA, chances are they're being absolutely flattened by school-related debt. Their jobs aren't helping pay down that debt, either, as roughly 284,000 college graduates are making minimum wage and The Center For College Affordability and Productivity reports that nearly half of the college graduates from the class of 2010 are in jobs that don't require a bachelor's degree. A full 38% have taken gigs that don't even require a high school education.
In fact, the only one who seems to be making more money as a result of taking on student loans is Uncle Sam, whose Education Department profited more than $100 billion from student loan debt last year, thanks to low government borrowing costs and fixed interest rates on these loans.
Now, the Federal Reserve Bank of New York has found evidence that student loan debt may prevent a large chunk of an entire generation of college graduates from securing a mortgage and owning a home.
As reported by Bloomberg, two-thirds of student loans are held by Americans under age 40. From the third quarter of 2012 to the fourth quarter, the number of people in that age group who own homes fell by 4.6%, the steepest drop since 1982. That's bad news for big mortgage lenders like JPMorgan (JPM) and Wells Fargo (WFC), but it's even worse for the legions of indebted young Americans dreaming of home ownership.
While foreclosure rates recede, housing supplies dwindle and home prices rise, those strapped graduates are seeing rates on some privately issued student loans jump to nearly 12%. Even though home prices are still 25% below their 2006 peak and mortgage rates hover around a near-record low of 3.5%, first-time homebuyers are still only marginally ahead of investors buying properties to convert to rentals, according to the National Association of Realtors.
In a market where there are three applicants for every job and half of the 37 million people with student loans are deferring payments, the job advantages a degree offers today outweigh the dream home of the future. Despite their debt, college graduates earned a median weekly income of $1,066 in 2012, compared with $652 for someone with a high school diploma, according to the Bureau of Labor Statistics.
And those with bachelors degrees or better saw a 5% to 6.7% increase in employment between 2010 and 2012, while their unemployment rate of 4.5% compared favorably to the 8.3% rate of those with only a high school degree. Those pluses, however, can't hide a major negative when it comes to new grads and homebuying.
Many of these kids believe that a degree, in and of itself, has some sort of value. Most of these degrees require virtually no study in math, science and the like.
Maybe when they graduate and realize that their degree in Sociology, Underwater Basket Weaving, Women's Studies and Left-Handed Origami are useless.
Then discover if they took a class in arithmetic, followed by one in Logic, they might realize they are making poor choices.
Housing stifled???? .......... I thought MSN was saying it was doing great? The media is sick and half the problem.
Obamanomics 101 - the Socialist Agenda - Make people dependent on the government.
Obama pushes government student loans, so you take on huge debt, while the government makes billions, so you can get a minimum wage job, then end up on welfare, which means you can't pay back your loan, or qualify for a mortgage, and now he's got you by the gonads. And when it all comes tumbling down just like the mortgage bubble, we taxpayers will be on the hook for another multi billion $ bail-out.
"Now, the Federal Reserve Bank of New York has found evidence that student loan debt may prevent a large chunk of an entire generation of college graduates from securing a mortgage and owning a home."
Yup! There are a couple of 30 year old "toddlers" living at home on my block as well. The parents don't look too happy either.
You don't think it has anything to do with hired-in executives giving themselves $2 million an hour pay and everyone else $8/hour?
When we have piles of dead "beats" in the roads and REAL America goes back to work growing a fair and good economy again... then the housing crises ends. Ask yourself, is it really worth all this pain to work for psychopaths?
There are many aspects that affect this and not one more than the other. It is a domino affect, it may take longer to see one changes implications versus another. Going through 4 years of undergrad and 2 years of grad school straight, I personally have incurred student loan debt willingly. There is no way coming from a financial stressed upbringing that I could have attended college/grad school without it. I think the changes in the government, education system, banking system all impact how tuition and student loans are handled for today's students; which is sad. There is so much emphasis on going through higher education to better yourself. It is very difficult for students to be asked to pay on average $30,000 per year to attend a decent school, but more than half of that has to be covered by loans that have a variable interest rate which accrues interest while the student is in school. Once you have finished school (if you didn't drop out due to financial stress) you then have to worry about how to cover your monthly payments. If you get a job and begin to bring home a decent amount of money where you feel financially stable, the government then decides to penalize you by only allowing a certain amount of the student loan interest to be deducted for tax purposes, but Uncle Sam looks like he doing "a ok". It is a never ending cycle, that not necessarily one particular aspect needs to be looked at, they all need to work collaboratively to identify changes that could benefit all parties involved.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
[BRIEFING.COM] The stock market ended the holiday-shortened week on a mixed note as the Dow Jones Industrial Average shed 0.1%, while the S&P 500 added 0.1% with seven sectors posting gains.
Equity indices faced an uphill climb from the opening bell after disappointing quarterly results from Google (GOOG 536.10, -20.44) and IBM (IBM 190.04, -6.36) weighed on the early sentiment. Google reported earnings $0.15 below the Capital IQ consensus estimate on revenue of $15.42 ... More
More Market News
Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'