New College Grads Fear Mortgage Debt

AMA4-25-13Can spiraling college costs crush the economy? As new and recent graduates finish their studies burdened with record levels of student loan debt, some economists fear that might be true. Although the student loan problem has been worsening for the last decade or so, it’s gone largely unnoticed in the face of other economic crises. But with the average graduate owing over $26,000 in loans, the so-called “millennials” are choosing to avoid some of the traditional trappings of adulthood, such as auto loans and mortgages.

For many students, the old standby of working your way through school simply isn’t possible. To meet the basic tuition demands of a typical state university, a student might need to work full time at a professional level job. And for those whose families can’t foot a major part of the bill, financial aid comes to the rescue in the form of a variety of loans and stipends that may not require repayment until after graduation.

A shrinking job market in many sectors, along with increased competition for the jobs that are available makes it difficult for students to get themselves out of debt. That’s one reason why many recent graduates end up still living at home while they try to launch a career. But those who do find work and strike out on their own typically choose to rent, rather than take the step of buying a home.

One reason why these new and recent graduates are avoiding home ownership, say financial experts watching the student loan crisis, is simply a fear of assuming the debt burden of a mortgage. That fear spills over into other kinds of borrowing, too – this generation is also showing reluctance to assume other loans and major credit card debt.

What’s more, defaulting on a student loan ads a blemish to a young credit score that may take years to erase – and makes it difficult if not impossible to qualify for a mortgage at all. A recent poll of “millennials” revealed that many respondents did hope to buy a home someday but uncertainty about their finances made that unlikely in the near future.

The unconstrained rise in college costs has created a bubble waiting to burst, some economists warn. Mortgage debt, as Jason Hartman points out, is a “good debt” — but for new graduates overburdened by student loans, it’s a scary debt to have. (Top image: Flickr/jjorogon)

The American Monetary Association Team

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