Finance Globe

U.S. financial and economic topics from several finance writers.
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NAHB: Student Loan Crisis Induced by Housing Crisis

Lower home values are contributing to the student loan crisis as parents can’t get the funding to help their kids through college, according to a report released by the National Association of Home Builders.

“The rising student loan debt problem is another consequence of the housing downturn,” said NAHB Chairman Barry Rutenberg. “As more and more parents face tighter budget restraints as a result of lower home values, this is forcing an increasing number of students to take out loans for tuition, essentially shifting some of the burden of paying for college from parents to students.”

A report from the Federal Reserve earlier this month shows that the median net worth of U.S. households has plummeted 38.8 percent from 2007 through 2010, mostly driven by the collapse of housing prices. Lost home equity coupled with tighter lending standards have made it difficult for many homeowners to tap into their homes value to help their children with financing higher education.

“Together, these findings should serve as an urgent wake-up call for policymakers to do their part to ensure a full-fledged housing recovery moves forward to restore the balance sheets of tens of millions of home owning families, create jobs and spur economic growth,” said Rutenberg.

And while it’s not necessarily a bad thing for young adults to finance their own education, it may become a bigger financial burden in the coming weeks. On July 1st, interest rates for the federal Stafford loan are due to double from its current rate of 3.4 percent to 6.8 percent (which would only affect loans originated after that date and not existing loans).

On Thursday President Obama spoke about the importance of keeping college affordable and urged lawmakers to take action to prevent the hike on student loan interest rates.

If Congress does not get this done in a week, the average student with federal student loans will rack up an additional $1,000 in debt over the coming year," he said. "If Congress fails to act, more than 7 million students will suddenly be hit with the equivalent of a $1,000 tax hike. And that’s not something that you can afford right now."

In his remarks, the President also stressed the importance of taking this step for the broader economy. It's not just that those students will suddenly have less money to spend -- it's that we need to have the best educated workforce in the world, and keeping higher education affordable helps to make that possible.


Sources:
The White House
National Association of Home Builders
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Tuesday, 15 October 2019

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