A recent CFPB report disclosed that outstanding student loan debt now totals over $1 trillion, and the debt burden is causing problems for many first-time home buyers. According to mortgage industry experts, many first-time buyers are turned down for mortgages because their student loan debt significantly raises their overall debt level. This is particularly true given that some student loan payments are as high as a mortgage. Mark Kantrowitz, the founder of FinAid.org, recommends that borrowers restructure or consolidate student loans at a reduced interest rate to lower monthly payments.
Why is the student debt crisis such a hot issue, with President Obama and Mitt Romney supporting efforts to extend loan subsidies that expire in July? The answer is the debt burden negatively impacts the economy because young people are strapped and unable to buy homes or start businesses.Additionally, like risky mortgages, risky private student loans have been packaged into securities that are sold to the public. Concerns are growing that a pileup of student-loan defaults could jeopardize these investments, resulting in a burst similar to the housing bubble breakdown.