Student Loans Near $1 Trillion Hurt Young U.S. Buyers: Mortgages

[Javaman]

http://www.bloomberg.com/news/2012-02-16/student-loans-approaching-1-trillion-hurting-first-time-buyers-mortgages.html

Roshell Schenck has a Ph.D in pharmacy and earns $125,000 a year, yet can’t qualify for a mortgage for a house for herself and her 9-year-old daughter. The 2008 graduate of Lake Erie College of Osteopathic Medicine, in Erie, Pennsylvania, has more than $110,000 in student debt.

“I’d love to buy and can afford to buy,” said Schenck, 28. Since lenders place closer scrutiny on college loans than in prior years, she says, “it’s almost impossible for me to get a loan. My debt is crushing my chances of purchasing a home.”

As outstanding student debt approaches $1 trillion, it’s one more reason record-low interest rates aren’t doing more to boost housing. The tighter lending standards that have emerged in the wake of the recession weigh particularly on younger, first-time home buyers, according to a Federal Reserve study sent to Congress on Jan. 4. These households tend to be younger, often have relatively new credit profiles, lower-than-average credit scores and fewer economic resources to make a large down payment, the report said.

“Potential first-time homebuyers have been disproportionately affected by the very tight conditions in mortgage markets,” Federal Reserve Chairman Ben S. Bernanke said at a homebuilders conference last week. “First-time homebuyers are typically an important source of incremental housing demand, so their smaller presence in the market affects house prices and construction quite broadly.”

more at link...

[Romulox]

1. Um, she's 28 and makes $125/k a year? She'll be fine.

Ever notice papers like Bloomberg, WSJ, NYT always pick such unsympathetic figures?

This 28 year old is only making $125,000 a year! What ever will we do?

[GreenPartyVoter]

2. True, that was a bad example of a real problem. LOL

[Earth_First]

3. Honestly...

Our household income is [by choice] just shy of half of that, and A) we own our home B) had no problem securing a mortgage with student loan debt.

[mike_c]

4. I'm 57, make about $70K, and am in exactly the same boat....

My debt is a little less than her's, about $75K, but the net effect is the same. And I've been repaying since 1997, to the tune of about $750/month, and my principal has only declined by about $5K. I will not live long enough to repay that debt. It's a lifetime indenture.

I think many folks with student loans from the 70s and 80s fail to recognize how predatory they became during the late 80s and 90s. I've repaid a significant portion of my original loans but have only been credited with about $5K. It's shocking and depressing.

[Kellerfeller]

18. If you double your payments

and live near the national median for a few years, it will go down much faster.

[TheWraith]

30. I think their point is that even people who can obviously afford it are being denied...

...due to the way that the credit system "weights" student loans more heavily than current status. Hence the central point of the article, that the predominance of student loans is preventing a resurgence in home ownership.

[NNN0LHI]

5. Should have never gotten up to $1 Trillion in student loans

For the younger DUers here, at one time when we had strong unions in the US major companies used to hire people right out of high school, sometimes before kids would even graduate.

Then after you were hired if the company concluded further college courses were needed they used to pay for it. Not the employee. Some would even pay you your union hourly rate to attend class. The kind of hourly rate where just one paycheck could support an entire family real well.

Lot of Americans didn't like that kind of system though. So here you are now burdened with school debt.

And the rich get richer.

Don

[Javaman]

13. +1

We have lost so much and more over, the new generation has no idea of what was lost. That scares me.

[high density]

6. So rent for another five years, pay off the student debt in the meantime

and buy a house in 2017.

I don't know why this country has such an obsession on universal home ownership. If it works for you financially, that's awesome. But it's not for everybody and I don't know why the media is constantly framing the issue as if it's some sort of necessity.

[Earth_First]

7. I did not click the link for the full article...

However, how much house is this individual looking to mortgage is a critical piece of this story as well.

I noticed that a lot of younger, first-time homeowners are going straight to the top of the housing market, rather than, as our parents did, purchasing 'starter homes' and gradually building equity and 'trading' up for newer, perhaps larger digs...

[high density]

10. The article is missing specifics about that

And it's confusing two separate issues.

1. Education costs too much and students rack up large debts
2. People with large debts can't afford to buy a house, because homes are expensive and the existing debt already sucks up large portions of income.

I'm not sure how we fix #2 in instances where it's caused by #1. If our economy somehow expects people who cannot afford homes to buy homes, then we are just back in 2008 all over again in an unsustainable system that benefits nobody but the elite financiers.

[Yo_Mama]

11. Bingo

It's not a mortgage problem, it's a student debt problem and a really-bad-employment-outlook problem.

The woman given as an example can afford to pay off her student debt pretty rapidly, and when that gets knocked down she'll be able to buy a house. So for her it is merely a timing problem. For her, racking up the tuition loans really has paid off. And she's wrong if she thinks she can afford to buy most homes right now. She could buy a condo, maybe. To buy most homes in most areas she would get her debt-to-income ratio way too high right now, and any one financial reverse would start a cascade of financial disaster. If lenders don't want to write her a big mortgage they are doing her a favor.

No, the problem with the tuition loans are the students who have graduated with 60-80K in debt and can only get jobs that pay 30K, or all the students who can get nothing but really ill-paid jobs. For those students, the debt may prevent them from buying a house in their 30's. Who really wants to buy your first house with a 30 year mortgage in your 40s? Blah. You'll never be able to save for retirement.

Home values will continue to tail down for a long time to come in many parts of the country. Total cost of ownership has risen quite a lot, and in 2014 the new insurance mandates will kick in, and suddenly many individuals will find themselves in a financial crisis again. Right now a lot of people are paying their mortgage by cutting their insurance coverage. We are expecting another wave of mortgage defaults when the insurance mandate kicks in, and we are also expecting rents to fall again in many parts of the country.

[JCMach1]

23. Yep... that McMansion ain't gonna happen

at least not with a loan.

[Snake Alchemist]

8. Exactly. This was an incredibly poor example.

Whether we want to or not the US needs to move to a more European model where people are closer to cities and a decent flat is enough for a family.

[Sen. Walter Sobchak]

31. I haven't been to a single city in Western Europe...

that didn't have suburbs identical to those here.

[Snake Alchemist]

33. I have seen nothing even close to the sprawl that is Atlanta in Europe. nt

[shanti]

20. exactly

i wasn't able to buy a home until i was 40. it just wasn't feasible until then, but it did happen eventually.

[JPZenger]

9. Federal student loan interest rate to double after July, unless Congress acts

The interest rate on federally subsidized loans for undergraduates will double for new loans taken out after July, unless Congress acts. The president has asked for an extension of the low rates, particularly since the Feds are able to borrow the money so cheaply. The interest rate will increase from 3.4 to 6.8%.

Also, after July, the feds will no longer subsidize the interest rates of any new loans for graduate and professional school. The interest will start to accrue soon after the loans are taken out, while students are still in school.

[kiva]

12. I make less than half of her wage,

and my student loan debt is higher. Last year I got a loan to buy a house, with 3 percent down.

There may be other reasons why she couldn't buy, but this ratio isn't the only reason. That said, student loan debt is one of the most problematic things in our country's future - other options need to be available.

[Ganja Ninja]

14. All the more reason we should publicly fund at least the first two years of college or

technical school.

[taught_me_patience]

15. Complete and total B.S.

First off... if she ammortized that loan over 30 years, at the ridiculus 6.8% that the government is charging, then her debt payment would be $700/mo... puny relative to her take home pay. I suspect that there are other reasons why she cannot buy a home:

1) poor credit
2) she's trying to buy a 700k mansion
3) she's ammortizing her student loan over 10 years and paying $1,200/mo and not really making 125k like she claims.
4) she's sending her daughter to private school, at a cost of 20k/year.

My wife and I have double the amount of student loan debt as this lady and had no problem buying a home.

[madrchsod]

16. my wife is on the hook for helping our son`s college cost

and she still owes money on her loan. i guess they`ll take it out of our inheritance

[Kellerfeller]

19. Why is she on the hook?

I started telling my kids in the 2nd grade that they were going to pay for their own college so they had vested interest in succeeding.

My son is working part time at Burger King and is able to afford tuition. And he is working his butt off (which he didn't really do in high school) because it is his money that is paying for it.

[joeglow3]

21. Ding Ding Ding.....we have a winner

I worked 30-35 hours a week when college was in session and 80-100 hours a week during breaks. I am not saying everyone needs to work that much, but I wanted to graduate with zero debt (and did). I would say the vast majority of classmates took out loans and either didn't work at all or worked for beer money. They then graduated with 6 figures of debt and complain about it.

Clearly, we can, and should, do more to bring down the cost of education (look at the frigging ammenities some schools offer), but we also need to teach students how to understand the concept of delayed gratification.

[Javaman]

25. Does your son go to a community college or a state university? nt

[Kellerfeller]

26. State University (nt)

[Javaman]

27. that's why it's still reasonably affordable...

god help any kid going to school out of state as a non-res.

[Kellerfeller]

28. He wanted to go to a private school

but couldn't afford it. Another good life lesson--You can't always get what you want!

[Javaman]

29. My wifes son is going to a state college...

thank god. LOL

[former9thward]

17. Everyone ignores the prices Big University is charging.

Tuition increases have been ridiculous. The law school I went to had professors making 225k a year and teaching a 3 hour course. If student loans were cut down tuition would drop like a rock.

[JCMach1]

22. Save and pay cash... As cheap as houses are these days, that is a better option...

[cyglet]

24. How do you afford a house payment

When you have effectively one already?

[NJCher]

32. http://studentloanjustice.org/

mikec's post (at the moment, fourth from top) is what I would say, too--people do not realize how predatory the student loan business has become. I teach at a university and have been following the increase in tuition issue over the last decade.

See the site in my subject title. I heard a radio interview with the person who runs the site (Allen Collinge). I was horrified. There is no chance in the world most people will be able to pay off these loans. It is such a huge number that some people think this will affect the recovery of the housing market, just as what is said in the OP.

At the site are a list of articles that I think people will find highly informative. A few titles:

1/10/12: How to Fix the Student Loan Crisis (Lynn O'Shaughnessy)

1/10/12: Student Loans and Bankruptcy: The Debate Continues

12/29/11: Should Student Loans be dischargeable in Bankruptcy?

10/27/11: Congress: Fix What is Broken With the Student Loan System

8/13/11: Why Removing Bankruptcy Protections is Incredibly Stupid

5/5/11: Citizen Action

5/5/11: Why College Costs So Much

1/13/11: Government Profiting on Defaults

12/20/10: Democrats: Restore at least One Protection Before You Go

10/14/10: Killer Loans

8/6/10: Student Loans Surpass Credit Card Debt

Collinge also says that the easy availability of student loan money is why tuition has risen so fast.


Cher