PD Editorial: Shackled by student loan debt

Three years ago, student-loan debt passed credit card debt as the number one form of troubled loans in America - and there’s been no turning back.

At the close of 2014, student-loan delinquencies increased 11.3 percent, according to a Fed report this week. These involved loans that were at least 90 days overdue in the last three months of the year. That’s up from 11.1 percent from the previous quarter. Total student loan debt in American now stands at nearly $1.2 trillion.

Meanwhile, figures from the Federal Reserve Bank of New York show declining delinquency rates for all other forms of debt, including credit card and mortgage loans. The biggest contributing factor is that individuals can’t shake student debt in bankruptcy court as easily as they can other forms of debt. As a result, delinquent and defaulted loans stay on a borrower’s credit report for years.

This is creating another alarming trend - the inability of adults with education loans from taking part in the rebounding real estate market.

According to government reports issued this week, construction of new homes fell slightly in January, and while sales have been increasing, the percentage of first-time buyers is unusually low. A contributing factor, according to research by the New York Fed, is younger Americans with outstanding student loans are less likely to take out mortgages than those without student debt.

This represents a significant change. Prior to the recession, 30-year-olds with student debt were more likely to have mortgages. Why? Because, according to the Fed, their higher levels of education came with higher potential incomes.

What’s evident is that when the economy went in the tank in 2008, many chose to ride it out in college, seeking higher earning potential but racking up more debt in the process. According to Fed researchers, the number of borrowers of student loans increased 92 percent from 2004 to 2014. The average loan balance grew as well by some 74 percent.

Now these individuals are finding it hard to find jobs that will help them pay off the loans while keeping pace with escalating housing costs. As it stands, the median balance for troubled loans is $14,000. Nearly 40 percent of these borrowers owe less than $10,000. But 4 percent of borrowers - some 1.8 million people - owe more than $100,000.

It’s a breathtaking sum.

Today’s students have reason to be encouraged by the efforts of President Barack Obama - in proposing free community college education - and Gov. Jerry Brown - in opposing efforts by UC Regents to move ahead with a 5 percent tuition increase. But these steps offer little hope to yesterday’s college students who are increasingly caught between paying for past educations while setting aside funds for a future - all while working jobs that often provide little for either.

These graduates and former students need jobs and help in the form of debt relief or, as New York Gov. Andrew Cuomo recently proposed, a loan forgiveness program that would allow people to pay nothing on student loans for at least the first two years out of school. States are looking into other relief measures as well, in recognition that the nation can’t afford to lose a generation of young adults to joblessness and debt.