College grads are even more in debt than we thought.
Student loan debt hit the $1 trillion mark — a figure that tops even Americans' credit card debt, according to a speech given Wednesday by Rohit Chopra of the Consumer Financial Protection Bureau at the Consumer Bankers Association meeting in Austin, Texas.
Calling the results “sobering” in a statement on the CFPB's website, Chopra said the mark was probably hit “several months ago” and tops predictions by the New York Federal Reserve, which said student loan debt was at $870 billion.
But this isn’t just a problem for students.
“Excessive student debt can slow the recovery of the housing market. Student loan borrowers are sending big payments every month to their loan servicers, rather than becoming first-time homebuyers,” he said. “This debt can also put added stress on the borrowing capacity of the household and government sector.”
While huge amounts of student loan debt can prevent grads from qualifying for a mortgage (see my blog here), these numbers could indicate indebted grads won’t even attempt to apply. Who can afford to save for a down payment when you have $200,000 in outstanding loans?
The old mantra “You’re rent is how much? You could buy for that!” is just not true anymore. Renting is often the only option for students whose credit is shot because of intimidatingly large amounts of student loans (14% of people default on those loans), and jobs that are continually fewer and farther between, and paying even less.
Young people are now also rejecting suburban lifestyles. While housing might be more affordable in a sprawling suburb, it’s just not what Generation Y wants. The convenience of nearby entertainment and the short commute to work will, more often than not, make renting in the city more appealing than buying in the ‘burbs.
While the education students receive in college will stick with them for a lifetime, so may their debt — and perhaps a struggling U.S. housing market.