Student debt hinders housing
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Roshell Schenck has a doctorate in pharmacy and earns $125,000 a year, yet she can't qualify for a mortgage for a house for herself and her 9-year-old daughter because the 2008 graduate of Lake Erie College of Osteopathic Medicine in Erie has more than $110,000 in student debt.
Since lenders are placing closer scrutiny on college loans than in prior years, Ms. Schenck, 28, said, "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 and 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."
The Fed's white paper said 9 percent of 29- to 34-year-olds got a first-time mortgage between 2009 and 2011, compared with 17 percent 10 years earlier. "These data suggest a large decline in mortgage borrowing by potential first-time homebuyers due to not only weaker housing demand, but also the effect of tighter credit conditions," the Fed said.
Outstanding education debt surpassed credit-card debt last year for the first time, according to Mark Kantrowitz of Cranberry, publisher of FinAid.org, a student loan website. Recent college graduates carry an average debt load of more $25,000 each, which can limit their ability to qualify for mortgages even if they're fortunate enough to land a job in a market with an unemployment rate of 9 percent for 25- to 34-year-olds.
First Published February 17, 2012 12:00 am
