Student debt-to-income ratios are helping put a ruin on the housing recovery by impeding potential first-time homebuyers.

Officially three-quarters of the overall shortfall in household formation can be attributed to reductions among younger adults ages 18 to 34, Rohit Chopra, the assistant director at the Consumer Financial Protection Bureau, said. 

There are so many significant life events packed into the age range of 18-34, Chopra added in testimony before the United States Senate Committee on the Budget, but the one enormous roadblock past students and future homeowners can’t maneuver around is their incredibly high debt-to-income ratios.

Chopra cited both quantified and qualified examples to support the depth of the issue.

One borrower told the CFPB that she would be able to pay less per month if she bought a home rather than rented. But she was told her debt relative to her income meant that she could not qualify for a mortgage.

And she is not the anecdote Chopra shared.

A Realtor told the CFPB that she routinely checks credit reports for prospective renters, and with student loans soaking up so much of their incomes, many applications end up being denied.

As a result, the National Association of Realtors found that 49% of Americans cited student loan debt as a “huge obstacle” to homeownership.  

One of the possible solutions floating around Washington is Senator Elizabeth Warren’s, D-Mass., bill to let borrowers refinance old loan debt went through. If put implemented, about half of the outstanding loan volume for federal student loans and loan guarantees(about $460 billion) would be refinanced, the Congressional Budget Office said. 

In addition, the bill would allow the Secretary of Education to establish income limits and debt-to-income ratios to determine who would be eligible to refinance their student loans.

CBO expects that such guidelines would make only about 5% of the outstanding loan volume ineligible for refinancing.

Washington is taking greater notice of the issue as more regulators weigh in.

Two Senate meetings Wednesday morning alone focused on student loan debt.

In addition to the meeting the CFPB's Chopra attended, the banking committee’s Subcommittee on Financial Institutions and Consumer Protection  also held a meeting to hear about student's experiences transversing the debt markets.

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