(Bloomberg News) Roshell Schenck has a PhD in pharmacy and earns $125,000 a year, yet can't qualify for a mortgage for a house for herself and her 9-year-old daughter. The 2008 graduate of Lake Erie College of Osteopathic Medicine, in Erie, Pennsylvania, has more than $110,000 in student debt.
"I'd love to buy and can afford to buy," said Schenck, 28. Since lenders place closer scrutiny on college loans than in prior years, she says, "it's almost impossible for me to get a loan. My debt is crushing my chances of purchasing a home."
As outstanding student debt approaches $1 trillion, it's one more reason record-low interest rates aren't doing more to boost housing. The tighter lending standards that have emerged in the wake of the recession weigh particularly on younger, first-time home buyers, according to a Federal Reserve study sent to Congress on Jan. 4. These households tend to be younger, often have relatively new credit profiles, lower-than-average credit scores and fewer economic resources to make a large down payment, the report said.
"Potential first-time homebuyers have been disproportionately affected by the very tight conditions in mortgage markets," Federal Reserve Chairman Ben S. Bernanke said at a homebuilders conference last week. "First-time homebuyers are typically an important source of incremental housing demand, so their smaller presence in the market affects house prices and construction quite broadly."
White Paper
The Fed's white paper said 9 percent of 29- to 34-year-olds got a first-time mortgage between 2009 and 2011, compared with 17 percent 10 years earlier. "These data suggest a large decline in mortgage borrowing by potential first-time homebuyers due to not only weaker housing demand, but also the effect of tighter credit conditions," the Fed said.
Outstanding education debt surpassed credit-card debt last year for the first time, according to Mark Kantrowitz, publisher of FinAid.org, a student loan website. Recent college graduates carry an average debt load of more $25,000 each, which can limit their ability to qualify for mortgages even if they're fortunate enough to land a job in a market with an unemployment rate of 9 percent for 25 to 34 year-olds.
Calling it a "student-loan debt bomb," the National Association of Consumer Bankruptcy Attorneys warned Feb. 7 about the effects of rising student debt on recent graduates, parents who cosigned their loans and older Americans who have gone back to school for job training.
'Drag On The Economy'
"Just as the housing bubble created a mortgage debt overhang that absorbs the income of consumers and renders them unable to engage in consumer spending that sustains the economy, so too are student loans beginning to have the same effect, which will be a drag on the economy for the foreseeable future," John Rao, vice president of the NACBA, said on a conference call.
People age 25 to 34 made up 27 percent of all home buyers in 2011, the lowest in the last decade and compared with 33 percent in 2001, according to the National Association of Realtors. At the same time, first-time buyers last year accounted for 37 percent of all purchases, the lowest since 2006, when home prices peaked and the housing boom was showing cracks.