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What you need to know for 01/16/2018

Student loan debt weighs on the economy

Student loan debt weighs on the economy

The sum of $189,234.78 is impressive on its own.

The sum of $189,234.78 is impressive on its own.

What makes it more notable is this: It’s the total, in principal and interest, of three college loans that a lender is suing to recover in Rensselaer County court.

The number is even more noteworthy when you realize it’s close to the January median sales price — $187,000 — of a single-family home in Niskayuna.

And that speaks to why lawmakers, economists and others are worried that student-loan debt could be so burdensome to a whole generation of Americans that enthusiasm for typical coming-of-age activities like car- and home-buying — even household formation — could be muted, impacting the wider economy.

Outstanding student loans stood at $1.08 trillion as of Dec. 31, according to the Federal Reserve Bank of New York, which also noted that about 11.5 percent of the loans were “severely derogatory” — at least 90 days past due — or in default.

The young adults who went to college using the loans are part of the best-educated cohort in American history, says the Pew Research Center, which last week released a report on “Millennials in Adulthood.” But the group, born after 1980, faces a tougher time starting out than did its Gen X cousins and Boomer parents, according to Pew. Some two-thirds of Millennials who earned a bachelor’s degree left school with an average debt of $27,000. Two decades earlier, just half of graduates left with debt, and their average was $15,000, the report says.

David Bergeron, a vice president at the Center for American Progress, a Washington, D.C.-based think tank, calls the student-loan debt “a crisis” for Millennials (and their parents, too, many of whom co-signed loans or originated their own).

In an issue paper last fall, Bergeron, with two center colleagues, suggested that refinancing options need to be developed to help ease the loans’ burden on borrowers.

“Refinancing could significantly reduce monthly payments, increase repayment rates and stimulate the economy by freeing up a portion of each student-loan borrower’s income that could be spent in other sectors of the economy or saved for larger purchases,” they wrote.

The center estimated that some $21 billion in new economic activity might occur if loans carrying an interest rate of greater than 5 percent were refinanced.

The paper pointed to four proposals then in Congress on refinancing student-loan debt — including one from New York Sen. Kirsten Gillibrand. Others have surfaced since then, Bergeron told me this week, which he said “reflects growing concern” over the potential ripple effect on the overall economy.

That has “created a sense of urgency” that something needs to be done, Bergeron said, declining to lay odds on getting refinancing legislation passed this year, given the current partisan Congress.

“At least there’s a possibility” of passage, though, he said, citing the agreement finally brokered last summer that rolled back interest rates, which had doubled, on popular Stafford college loans. “I can’t be other than optimistic.”

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