By Sana Cole
The Scene staff
Rising debt from student loans may be keeping young people from buying homes or paying mortgages, and that’s bad for the economy.
That was one of the conclusions at a symposium on the future of student loans, hosted by the Federal Reserve Bank of St. Louis last month. About 150 students and professionals from financial and educational institutions packed a meeting room.
“Outstanding student debt has doubled since 2007,” said keynote speaker Rohit Chopra, assistant director and student loan ombudsman for the Consumer Financial Protection Bureau. “This is similar to mortgage and credit-card debt. Student debt may be (keeping) many young people from buying a home.”
Borrowers have run out of options, Chopra said. They’re finding little or no help paying off debt.
Chopra maintained that schools are not adequately preparing students for employment with good wages. As a result, young people who do buy homes have a tough time paying off mortgages and student loans.
It can become a vicious cycle, possibly keeping college graduates from getting better jobs or renting apartments.
“(Bad credit) affects employment verification, and landlords will check,” Chopra said.
But the answer is not for fewer young people to attend college, as wages for non-graduates are falling rapidly.
“Ironically, it is more important than ever to go to college to secure a middle-class life,” Chopra said.
Kelly Edmiston, senior economist for the Federal Reserve Bank of Kansas City, also believes that low-paying jobs are at least partially to blame for the student-debt problem.
“The Associated Press did an analysis that stated 50 percent of students coming out of college are unemployed or underemployed,” she said during a roundtable discussion. “It seems reasonable to me that 50 percent of people fit that category and have a hard time making (loan payments) of $400 a month.”
Carolyn Ratcliffe, senior fellow at the Urban Institute, said student-loan debt has the greatest impact on the very young, low-income households and minorities, particularly blacks.
“White families are five times as likely to get inheritances to pay for their education,” she said. “(Minorities) aren’t on a wealth-building path. African Americans and Hispanic families were hit harder during the recession.
“White families have three times as much wealth in their 40s (than minorities do). Part of repayment of the students is going to be tied to their income. White families have about twice the income of African Americans.”
Ratcliffe also noted that many blacks lack support systems to help them pay back student loans after graduation.
The symposium ended with experts offering advice on how students can avoid some of the financial strain caused by student loans.
“College students can prepare for college earlier, if they know that college is an option,” said William Elliott, a faculty member in the School of Social Work at the University of Kansas.
He said white parents often state that they start saving for their children’s educations at young ages, while minorities often spend money on superficial or temporal goods.
Other issues include the mindset of those that are “loan adverse.” This keeps them from considering school as an option that they will invest in themselves.
Sandy Baum, research professor at George Washington University and senior fellow of the Urban Institute, believes that society needs to take a closer look at who’s struggling to pay back student debt.
“The problem isn’t the trillion-dollar debt, it’s the individuals who hold the debt,” Baum said. “We need to give more information and more guidance, not just a website they can go to.
“It’s not the student loan that’s causing problems. It’s too many students borrowing too much money to do things that don’t pay off.”
Baum also believes that payments should be timed with a student’s earnings. Income based repayment plans need to be set up.
“We have to think about how to structure those income based repayment programs,” Baum said. “We have a lot of work to do to design those programs, so that they both protect borrowers and protect taxpayers.”
“We have to make sure that student loans aren’t ruining peoples’ lives, and they are ruining people’s lives in ways that we can absolutely correct.”