Under-30 Student Debtors Retreat from Home, Auto Financing

Under-30 Student Debtors Retreat from Housing, Auto LoansAs student-loan debt balloons, more college graduates under the age of 30  are staying out of the home and auto financing sectors, creating a potential problem for the economy.
This is happening despite this group’s higher income-earning potential.
A new report from the Federal Reserve Bank of New York examines trends in homeownership, auto debt, and total borrowing at “standard ages of entry” into the housing and vehicle markets for U.S. workers.
Young adults in their mid- to late-20s are the focus. The share of 25-year-olds with student debt has surged from just 25 percent in 2003 to 43 percent in 2012, the N.Y. Fed said.
Even more striking is this fact: the average student loan balance among those 25-year-olds with student debt grew by 91 percent over the same period, from $10,649 in 2003 to $20,326 in 2012.
Student loan delinquencies have also been growing.
Student debt now exceeds aggregate auto loan, credit card, and home-equity debt balances, making student loans the second largest debt of U.S. households, following mortgages.
How has student loan debt affected the credit scores of young adults?
By 2012, the average score for 25-year-old non-borrowers was 15 points above that for student borrowers, and the average score for 30-year-old non-borrowers was 24 points above that for student borrowers.
“As a result of tighter underwriting standards, higher delinquency rates, and lower credit scores, consumers with educational debt may have more limited access to housing and auto debt and, as a result, more limited options in the housing and vehicle markets, despite their comparatively high earning potential,” concludes Meta Brown and Sydnee Caldwell, in the N.Y. Fed’s Liberty Street Economics blog.
Homeownership rates between 2003 and 2009 were significantly higher for 30-year-olds with a history of student debt than for those without. Student debt holders have higher levels of education on average and, hence, higher incomes. These more educated consumers are more likely to buy homes.
The homeownership difference between student debt holders and others expanded during the housing boom: by 2008, the homeownership gap between the two groups had reached 4 percentage points, or almost 14 percent of the non-student debtors’ homeownership rate.
However, this relationship changed dramatically during the recession. Homeownership rates fell across the board: 30-year-olds with no history of student debt saw their homeownership rates decline by 5 percentage points.
At the same time, homeownership rates among 30-year-olds with a history of student debt fell by more than 10 percentage points.
By 2012, the homeownership rate for student debtors was almost 2 percentage points lower than that of non-student debtors.
Under-30 Student Debtors Retreat from Housing, Auto Loans

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