Student Loan Debt Crisis Linked to Lower Home Values. Graphs.
Reprinted from the NAHB
June 21, 2012 – New analysis of government data by the National Association of Home Builders (NAHB) reveals a connection between rising student loan debt and the onset of the housing slump, and offers yet another example of how lower home values have hurt millions of middle class households and threatens the fragile economic recovery.
“The rising student loan debt problem is another consequence of the housing downturn,” said NAHB Chairman Barry Rutenberg, a home builder from Gainesville, Fla. “As more and more parents face tighter budget restraints as a result of lower home values, this is forcing an increasing number of students to take out loans for tuition, essentially shifting some of the burden of paying for college from parents to students.”
The link between rising student loan debt and the start of the housing crisis comes on the heels of a recent report from the Federal Reserve showing that U.S. household wealth plunged nearly 40 percent from 2007 to 2010 as a result of declining home values.
“Together, these findings should serve as an urgent wake-up call for policymakers to do their part to ensure a full-fledged housing recovery moves forward to restore the balance sheets of tens of millions of home owning families, create jobs and spur economic growth,” said Rutenberg.
The Connection between Student Loans and Housing
On July 1st, among other changes, interest rates on newly originated Stafford student loans are scheduled to increase from 3.4% to 6.8%. Due to this looming deadline, there has been a lot of attention paid to the rising amount of student loan debt. Some of this commentary goes as far as saying that recent data indicate a bubble exists for student loans, one that will burst with negative consequences for housing and other parts of the economy.
The analysis below indicates that some of these claims may be exaggerated. It is true that outstanding student loan debt has risen. But the data suggest that, in part, this rise in explicit student loan debt is in fact a shift of the source of higher education financing – one related to housing itself. Namely, with the onset of the housing crisis, there was a decline in the availability of home equity loans, often used to finance higher education of children by homeowning parents or to finance other large expenditures, thus freeing resources for college expenses. Consequently, students are more likely to take out student loans on their own behalf.
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