NAHB: Student loan debt crisis linked to lower home values

June 28, 2012
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Lower home values are contributing to the student loan crisis as parents can’t get the funding to help their children through college, according to a new report released by the National Association of Home Builders (NAHB).

“The rising student loan debt problem is another consequence of the housing downturn,” says Barry Rutenberg, NAHB chairman. “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.”

The link between rising student loan debt and the start of the housing crisis follows a recent report from the Federal Reserve showing that U.S. household wealth fell nearly 40 percent from 2007 to 2010 as a result of declining home values.

“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.

Outstanding student loan debt has risen 47.9 percent or by $293 million since the third quarter of 2008.

To get housing back on track and provide the foundation for an economic recovery, Rutenberg called on leaders in Washington to:

  • Provide access to mortgage credit for qualified borrowers
  • Demonstrate their support for the mortgage interest deduction
  • Support affordable down payments for home buyers
  • Enact reforms in appraisal practices and oversight to ensure that appraisals accurately reflect true market values
  • Establish a housing finance system that retains a federal backstop to ensure that standard 30-year fixed-rate loans and adjustable rate mortgages remain readily available for working class households.

The report concluded that the rising student loan debt doesn’t represent an increase in borrowing so much as it represents a change in how people are borrowing for college financing. As home equity loans have fallen, student loans have risen to match.

NAHB also reminds readers that rising debt is not necessarily a bad thing when the debt is used for investment purposes such as higher education.

“More fundamentally, it would be a mistake to condemn the attainment of higher education itself, and even debt-financed higher education, as bad for the economy and housing demands,” said the report. “The data show that education continues to result in higher wages, which is good for housing.”

About Diana Dietz, e-PRO:
Diana Dietz is the Communications Manager at the Pennsylvania Association of Realtors®. Follow Diana on Twitter.
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