Members of the President’s administration, specifically those at the Consumer Financial Protection Bureau, have recently stated that the high rate of student loan debt and its impact on the debt-to-income ratios of potential borrowers are keeping younger buyers out of the housing market.
"According to an analysis by the Federal Reserve Bank of New York, for the first time in at least a decade, households with student loan debt are less likely to have a mortgage than those without student loan debt,” CFPB Director Richard Cordray told attendees at the Boulder Summer Conference on Consumer Financial Decision Making last month.
In October, the student loan ombudsman for the CFPB, Rohit Chopra said, “"The fact is student indebtness impacts the credit profile of first-time homebuyer. Three-fourths of the fall in household formation can be directly correlated to student debt."
According to data from the New York Fed, student loan debt rose from $241 billion in 2003 to $1.11 trillion in the first quarter of 2014. “These costs have left the middle class feeling trapped,” President Obama said on Monday. “We believe that no young person should be priced out of a good education.”
Additionally, President Obama announced that he will also be directing Secretary Duncan to “develop, evaluate, and implement new targeted strategies to reach borrowers who may be struggling to repay their federal student loans to ensure that they have the information they need to select the best repayment option and avoid future default.”
President Obama also said that his administration fully supports a bill authored by Senator Elizabeth Warren, D-Mass., which would let borrowers refinance their student loan debt at today’s lower interest rates. In his weekly address, President Obama said that the refinancing would be paid for “by closing loopholes that allow some millionaires to pay a lower tax rate than the middle class.”
At one point, the President deviated from his prepared remarks to expand on his thoughts on the importance of Warren’s bill. “You’ve got a pretty straightforward bill here,” the President said. “It’s comes down to lower tax bills for millionaires or lower student loan interest rates. This should be a no-brainer.”
The Congressional Budget Office said that the bill would allow for half of the outstanding loan volume for federal student loans and loan guarantees (about $460 billion) to be refinanced. Young buyers armed with lower DTI ratios can only help the struggling housing market.
Near the close of his weekly address, President Obama said, “While Congress decides what it’s going to do, I will keep doing whatever I can without Congress to help responsible young people pay off their loans.”
“This country has always made a commitment to put a good education within the reach of all who are willing to work for it,” he concluded. “That’s what made us an economic superpower. That’s what makes us special. And as long as I hold this office, I’ll keep fighting to give more young people the chance to earn their own piece of the American Dream.”