A new report released Tuesday warns that student loan debt could cut a large population of people out of the housing market, having significant consequences on the economy.
Jen Mishory and Rory O'Sullivan of Young Invincibles, an advocacy group, write that the average single debtor is unlikely to qualify for the typical home mortgage considering his or her debt-to-income ratio, often a deciding factor in determining whether an individual can pay off a loan, would be too high.
The study adds that the average single student debtor would hand over half of monthly earned income to creditors for student loan, mortgage, credit card and car payments. Mishory and O'Sullivan used average payments on each debt to determine student debtors making median salary for college graduates would struggle to qualify for the median mortgage for first-time buyers.
While they won't be permanently out of the market and can return after paying down their debt, they're unlikely to spur recovery in the housing market in the near future -- a problem considered dire by Mishory and O'Sullivan who note that student debt topped $1 trillion last year as more Americans returned to school in a bad economy and paid inflated tuition and fees on colleges similarly strapped for cash.
Commenting on the student loan debt bubble in July, Education Secretary Arne Duncan told the New York Times that "Subprime-style lending went to college and now students are paying the price."