The president of the New York Federal Reserve Bank sounded the alarm on Monday that the student debt crisis continues to mount.
At a staggering $1.3 trillion, outstanding student loan debt is casting a financial pall on millions of Americans, according to a new study by the bank.
A college degree generally gives people a leg up in buying a home and achieving other middle-class goals. However, holding debt is associated with a lower rate of homeownership, irrespective of degree type, according to the report.
“Those with significant student debt are much less likely to own a home at any given age than those who completed their education with little or no student debt,” William Dudley, president of the New York Fed, told reporters on Monday. “Of course, home ownership is more than just consumption — it has historically been an important form of wealth accumulation.”
While declining to recommend steps the Trump administration might take to follow up on Obama administration measures to ease this financial burden, Dudley said that anything that “makes college more affordable, especially policies that make it more affordable for lower and moderate-income households, would be beneficial for income mobility over time.”
Here are five alarming details from the New York Fed report:
1. Student debt continues to pile up and has nearly doubled over the past decade to $1.3 trillion. Borrowing by students and their families has picked up steam over the years as social and economic pressure grows to obtain a college education to get ahead, even as states reduce their financial support for colleges and colleges raise their tuition.
2. Borrowers now leave school owing on average about $34,000. That is up 70 percent from a decade ago. About 5 percent of student loan borrowers owe more than $100,000, but they account for roughly a third of outstanding student debt.
3. Loan delinquency climbed to 11.2 percent in the last quarter of 2016, the highest rate for all types of household debt. That means that student loan repayment is taking a back seat to other pressing financial demands, such as rent, mortgage payments, phone bills and credit card balances. This comes nearly eight years after the end of the Great Recession.
4. More than one in ten borrowers are at least 90 days behind in repaying their student debt, which puts them in the “serious” debt category. Payment progress was particularly low among those with larger debts and those from lower-income areas.
5. Although college-educated people are more likely to have the financial wherewithal to buy a home than those without a college education, the mounting rate of default on student loans is hurting young people’s credit ratings – and making it much harder for them to buy a home or condominium.