Speaking before an audience at the Boulder Summer Conference on Consumer Financial Decision Making, Consumer Financial Protection Bureau  (CFPB) director Richard Cordray spoke on the effects of student loan debt on the future of the housing market. The oft-criticized director commented on the growing $1.2 trillion of student loan debt, and how student debt will have negative ramifications on the housing market in the future.
"It is not an overstatement to say that we are now standing at a precipice when it comes to the magnitude and consequences of our student loan debt in this country. We have reached $1.2 trillion of student loan debt, second only to mortgage debt as a category of consumer finance. This fast-growing burden is a pressing problem and a matter of grave importance to public policy in America," Cordray began.
He cited his experience at the CFPB listening to consumers, whose complaints range from their student loan debt burden as preventing them from buying a home, opening a small business, or starting a family. The obligation to pay back student loans has a ripple effect across the entire economy.
Cordray continued, citing a Pew study that found 40 percent of younger households, classified as homes headed by someone under the age of 40, as having student loan debt.
"Tuition costs have risen rapidly. Debt has risen even faster than tuition and default rates have increased. Graduates are earning less because of the recession. It has become increasingly clear that a weak labor market and rising student debt are putting the squeeze on young people," Cordray said, noting the more than 7 million Americans in default on student loans.
He continued, "Notably, it appears that young people are not forming new households at the same rate they did in the past. Many are living with parents or sharing space with their peers. In fact, according to a recent Pew survey, more than one-third of young people aged 18 to 31 are living with their parents—a jump of nearly 18 percent since the start of the recession."
A recent National Association of Realtors study found that 49 percent of Americans cited student loan debt as a "huge obstacle" to homeownership. Typically, higher education yields higher incomes, but post-recession this trend seems to be dwindling, if not petering out altogether. Cordray noted a Federal Reserve Bank analysis that said for the first time in at least a decade households with student loan debt are less likely to have a mortgage than those without student loan debt.
Furthermore, student loans can have a crippling long term effect on the economy, with younger borrowers unable to invest in small businesses or save adequately for retirement. The CFPB director called the current state a "vicious cycle."
Cordray encouraged servicers to play by the rules and treat borrowers fairly in order to help mitigate some of the financial problems created by burdensome student loans. "Together with greater outreach to encourage more borrowers to utilize affordable repayment options on federal student loans, these efforts will help promote more latitude for those laboring under significant levels of student loan debt to find ways to better manage these obligations," Cordray said.
He concluded that the current system is problematic, and that public policy decisions currently being made regarding higher education are "embarrassing."
"In the end, we need to recognize as a nation that we cannot afford to put higher education on an unsustainable basis for people whose ambitions and abilities should mark them out as our future leaders. It is also profoundly discordant with basic notions of equal opportunity if young people with merit, and who lack only the means, are unable to advance or end up crushed under student loan debt for much of their lives," he concluded.