Rising Student Debt Hurts Housing and Consumer Spending

Rising Student Debt Hurts Housing and Consumer Spending

Rising Student Debt Hurts Housing and Consumer Spending

Rising student loan debt looks to harm the overall US economy, especially home ownership and consumer spending, a top Federal Reserve official said Monday.

The rising debt also might erode colleges’ and universities’ ability to elevate lower-income students.

New York Fed President William Dudley cited research from his institution, pointed to rising costs of higher education and student debt burdens as the Key problems in the troubling trend.

Overall US household debt is expected to surpass its pre-recession high later this year.

Proportionally, Americans have shifted away from housing-related debt and toward auto and student loan debt, with aggregate student loan balances $1.3-T at the end of last year, up 170% from Y 2006.

Mr. Dudley, whose NY Fed branch monitors economic indicators but who does not have any control over fiscal policies like college funding, noted that overall delinquency rates “remain stubbornly high” and repayments have slowed, even while the job market improved the last few years.

There are “potential longer-term negative implications of student debt on homeownership and other types of consumer spending,” he said at a news conference.

“Continued increases in college costs and debt burdens could inhibit higher education’s ability to serve as an important engine of upward income mobility, these developments are important and deserve increased attention.”

The New York Fed data showed a shift among lower-income borrowers to auto and student loans, and away from mortgages, and that higher debt levels bring about lower home ownership rates.

Mr. Dudley added that sharp rises in the value of housing and stock prices, jobs growth and moderate strength in wages mean that, overall, “the household sector’s financial condition today is in unusually good shape for this point in the economic cycle.”

Stay tuned…

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