One big reason is underemployed new college graduates struggling with student debt and unable to contribute to the economy. Three-fourths of the fall in household formation can be directly correlated to student debt, Rohit Chopra, student loan ombudsman at the Consumer Financial Protection Bureau, said at a conference last week. His comments were reported on Mainstreet.com. Chopra said he was seeing signs of far-reaching economic drag due to student indebtedness but that the impact on the housing market is the most troubling part. Many recent graduates dont have the disposable income or the credit score needed to buy a house, Chopra said. So they boomerang back home.
Most of it has been about the federal debt burden. I want to shift the discussion to individuals, particularly those with private student loans. The student-loan ombudsman for the Consumer Financial Protection Bureau has just released a report Obama plan for student loan forgiveness analyzing complaints the watchdog agency has received from private student-loan borrowers. Not surprisingly, the chief gripe concerned payment issues. But its not what you might think. Many borrowers said they encountered problems trying to pay off their debt early.
It’s Official: Student Loan Debt Is Hurting the Economy
Any additional fees they impose on the borrower are theirs to keep. And this provides the same kind of mismatched incentives that weve always seen in the mortgage market the servicer profits from maximizing suffering on the student loan holder, and has no financial interest in helping them. For example, student loan borrowers who run into trouble and need a loan modification to avoid default find their servicers to be uniquely unhelpful; half of the complaints came from loan modification seekers. Though an alternative payment plan would benefit the lender and increase overall collections, the servicer is reluctant, because their fees are derived from the unpaid balance. If the balance gets cut in a modification, servicers lose money. So they frustrate the process for the borrower, leading to an increase in the default rate .
PREV of NEXT Mark Harrison / The Seattle Times A.J. and Amy Roberts sold their Edmonds condo and downsized to help get a handle on debts particularly their student loans. Hide / Show comments I guess actually enjoying your life and taking vacations can wait a few years or… (October 26, 2013, by tutone) MORE I’ll take it a step further tutone- If you’re living your life intelligently, there… (October 27, 2013, by m5po) MORE “I don’t know about this couple though.
But high levels of student debt are keeping graduates from achieving goals such as saving for retirement, starting new businesses — and buying a home. A roadblock to homeownership Surveys reveal that many indebted college graduates have found student debt to be a barrier to owning a home. Respondents to a poll by the Young Invincibles this past spring showed that 47% have put off buying a home to make their monthly student loan payments. Likewise, a study by the OneWisconsin Institute in June found that those without student debt had a 36% higher rate of homeownership than those who were still paying on their college loans. Student loans can also increase the chances of being rejected for a mortgage, particularly if there are several separate loans listed on an applicant’s credit report. In the Young Invincibles survey, 15% said their mortgage application had been rejected because of student debt.
However, allowing his credit to languish and even take the hits for bad credit decisions, while you build up a good credit history with accounts that both of you actually use, will cause problems in the long run. One reason it’s important to build up both of your credit scores is that if, heaven forbid, something happens to you or to your marriage, your husband is in big trouble. Without a decent score of his own, he wouldn’t be able to get credit or even possibly a decent place to live. He’s in a very vulnerable position. Another reason is that if you intend to buy a house with your husband, you may need to claim both of your incomes to qualify.