NEW YORK (MainStreet) It's one thing to avoid buying property because you want to be risk averse in a turbulent economy. It's another to suggest that 20- and 30-somethings may be camping out at chez Mom and Dad, because the idea of buying or even renting while their credit scores are borderline or whacked has left them spooked.
But that seemed to be the message student loan ombudsman Rohit Chopra of the Consumer Financial Protection Bureau had in a speech at last week's ABS East 2013 conference in Miami, a gathering of figures involved in the asset-backed securities market. The recovery in housing, Chopra said, was being hurt more by the student loan crisis than by any other single factor.
"We are already seeing signs of economic drag from student loan debt," Chopra said. "The impact on the housing market is the most troubling part."
Chopra has been crunching the numbers and drawing some conclusions that may or may not have been welcomed by the structured finance wonks in attendance.
"The fact is that student indebtedness impacts the credit profile of first-time homebuyers," Chopra told the Florida confab. "Three-fourths of the fall in household formation can be attributed to younger adults under 34."
As with residential mortgages, the $1.2 trillion a year student loan industry is backed primarily by the federal government.
Overall, the current student loan debt crisis, he said, is harming macroeconomic growth in the larger economy. He also said the industry should seek try to revive the securitization market to help create a more financially responsible industry. The market for securitizing student loans was among the casualties of the 2008 financial crisis, after which most private lenders folded their tents.
At the same time, Chopra did not seem to be a fan of quantitative easing, where the fed buys up US Treasury notes and mortgaged-backed securities, as anything that aids people with student loans. Other consumer loans remain at historic lows, even as the market seems to be entering a climate of rising interest rates. By contrast, rates on student loans have mainly fixed rates of 8% and up and are applied to a much bigger principle than most credit card or auto loans. An estimated 7 million student loan borrowers are in default.