Last week the New York Federal Reserve President, William Dudley, gave a briefing on household debt with a particular focus on student loans. The briefing was based in part on a report just released by the NY Fed titled, Diplomas to Doorsteps: Education, Student Debt, and Homeownership.
The briefing highlighted the fact that household debt levels have almost returned to pre-crisis levels but the typical consumer’s balance sheet looks quite different. The big change is that consumers have moved away from housing related debt and accumulated much more student and auto loan debt.
At the same time, this increased student loan debt is having an impact on home ownership. Here is Fed President Dudley:
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… Of course, home ownership is more than just consumption — it has historically been an important form of wealth accumulation.
It is clear that burdensome student debt is now holding many people back financially. Student loan debt now stands at a staggering $1.3 trillion (as of the end of 2016) an increase of 170 percent over the preceding 10 years. There are three contributing factors to this increase:
- More students are taking out loans.
- The loans are for larger amounts.
- Borrower repayments have slowed down.