Rising student debt levels are weakening businesses for auto and housing markets, a recent report by Federal Reserve Bank of New York (FRBNY) showed.
U.S. student loan debt amounted to a total of $966 billion in 2012, making it the second largest debt in the country after mortgages. Student debt now surpasses auto loans, credit cards and home-equity balances.
The market share of 25-year-olds holding a student loan expanded to 43 percent in 2012 from 25 percent in 2003. The average student loan balance increased by 91 percent from $10,649 ten years ago to $20,326.
The report showed that people with student loans are less likely to take on other forms of debt such as mortgages and auto loans.
The total debt that a typical student held in 2008 was $35,559. It declined to less than $30,000 this year.
Moreover, 30-year-old borrowers (30 years is deemed in the study as the median age at first home purchase) with history of student debt are less likely to secure housing loans than those without. In 2012, the home ownership rate for those with student loans is 2 percentage points lower than those without student debt history.
Likewise, 25-year-old student-borrowers seem to be less interested now in funding their vehicle purchases with debt than those who do not have a history of repaying a student loan. Over the past decade, student loan borrowers who took out auto loans after school are down to about 30 percent from 37 percent.
According to the FRBNY report, people who took on a loan for their schooling and were able to get good education may have limited access to auto and housing markets despite their potential to earn higher income than others. This is largely due to “tighter underwriting standards, higher delinquency rates, and lower credit scores.”
“While highly skilled young workers have traditionally provided a vital influx of new, affluent consumers to U.S. housing and auto markets, unprecedented student debt may dampen their influence in today’s marketplace,” the report concluded.