By Daniel DeMarco |Assistant Features Editor|
Over 40 million Americans have student loan debt; a population greater than the entire population of Canada, Australia, Poland, North Korea, and over 200 other countries, according to The Huffington Post.
There are two potential signs we are heading for another economic downturn, dealing in the housing and automotive markets.
The impact of student debt has translated into over $6 billion in losses for automotive sales every year, based on a report by One Wisconsin Institute, an organization involved in fixing the student debt crisis.
General Motor’s chief economist, Dr. G. Mustafa Mohatarem, also cites student debt as a major reason why millennials (the generation born in the early 80’s to early 2000’s) are not buying cars, resulting in large sales losses in the automotive industry.
Mortgage industry experts, such as the National Association of Realtors, fear that young adults are now being overly impeded by debt and that will impede on the housing market and the economy as a whole, which relies on the housing market for its growth.
Nothing is harming the housing recovery “in such a nuanced way” like student loan debt and its negative effect on macroeconomic growth, according to Rohit Chopra, student loan ombudsman for the Consumer Financial Protection Bureau.
David H. Stevens, chief executive of the Mortgage Bankers Association said, “Student debt trumps all other consumer debt. It’s going to have an extraordinary dampening effect on young peoples’ ability to borrow for a home, and that’s going to impact the housing market and the economy at large.”
Some students are surprised by this news.
“As students, we already have so much on our plates. I haven’t even begun thinking about a house and I haven’t thought about how my debt will hurt that either,” said student Mia Wales.
“We are already seeing signs of economic drag from student loan debt,” said Chopra, “The impact on the housing market is the most troubling part.”
Chopra believes the industry should seek a securitization cure (pulling together various forms of debt and selling it to investors for their profit through interest payments) to better the industry and make it more financially responsible.
Student debt has increased over 500 percent since 1999, while the average salary of young people has decreased by 10 percent since 2000, according to PolicyMic, a news website dedicated to high-quality political discussion for younger generations.
PolicyMic also reported a 900 percent increase in the average price of tuition, as well as an increase of 650 points above inflation since 1978.
About seven million of those in student debt have defaulted on their debts, meaning that their credit has been decimated and they can acquire an added 25 percent of penalties to their already standing debt.
Close to 60 percent of employers run credit checks when considering applicants and promotions. This makes the ability to repay the debts even harder as these people find it nearly impossible to get a well-paying or higher-paying job, according to The Huffington Post.
Americans that fall into trouble paying for their student loans will also find it nearly impossible to file for bankruptcy because most consumer debts and even gambling debts can be erased through bankruptcy, but education debt can not.
Education debts can continue to grow for borrowers that can not pay for them and will often follow the person to their grave.
“That’s sick that someone can get out of gambling debt but I can’t get out of debt from going to college. I think I’ll be able to pay it just fine, but you never know what life will throw at you,” said student Joey Panderson.
The bankruptcy protection over education debt only benefits the lenders.
A leaked memo exploited the fact when the notable student loan corporation, Sallie Mae, had the perseverance of the “inability to discharge education debt in bankruptcy” as their second-most important goal, according to The Huffington Post.
Many jobs require official transcripts to verify education of applicants and the Department of Education encourages schools to withhold the transcripts of people behind on their debt payments.
Since 2002 the debt-to-income ratio of the average student debtor has increased from .43 to .49.
This disqualifies a lot more people for any first-time home mortgages, according to Young Invincibles, an organization dedicated to creating opportunities for young adults.
The Mortgage Bankers Association found that loan applications for homes have fallen almost 20 percent since late 2013 until now when compared to the same period from 2012 to 2013.
First-time buyers are about a third of home purchases over the last year, a number that is well below the normal figures of the housing market, according to The Washington Post.
The Federal Reserve Bank of New York found that from 2009 to 2012 the homeownership rate fell double for 30-year-olds with student loan history compared to those without.
These findings contradicted traditional thinking that student debt led to higher earnings and better chances of owning a home, according to The Washington Post.
Recently, student loans now have variable interest rates, meaning that as the economy improves the rates will rise and are expected to go above 6.8 percent by 2015, according to The Huffington Post.
The housing and automotive market are among the larger sectors of the economy and experts believe that declining business in both could lead to another economic crisis.
The Federal Government made $50 billion on student loans in 2013, according to the Congressional Budget Office.
ExxonMobile makes $5 billion less and is the most profitable company in the entire country.