Friday, April 19, 2013

Student Debt Has Consequences

Student loans are crowding cars and homes out of the lives of young adults, according to a Liberty Street Economics analysis by Meta Brown and Sydnee Caldwell of the Federal Reserve Bank of New York.

In their analysis, Brown and Caldwell track the decline of mortgage debt held by 30-year-olds and auto debt held by 25-year-olds. Both have plunged, particularly among young adults with student loans. In fact, young adults with student loans are now less likely to have either mortgage or auto debt than those without student loans--a reversal from the pattern prior to the Great Recession.

Young adults with student loans have been shedding other debt as their student loans grow. Between 2003 and 2012, the percentage of 25-year-olds with student loan debt climbed from 25 to 43 percent, and the average amount owed grew from $10,649 to $20,326. But the refusal--or (perhaps more important) inability--of these 25-year-olds to buy cars and houses has resulted in a decline in their other debt. This decline has been greater than the increase in their student loans. Consequently, 25-year-olds with student loans reduced their overall debt by $5,687 between 2008 and 2012. That's good news for them, but bad news for the nation's automotive and housing industries.

Source: Federal Reserve Bank of New York, Liberty Street Economics, Young Student Loan Borrowers Retreat from Housing and Auto Markets

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