Student debt may drag on home ownership: Fed's Dudley


US students' debt burden is soaring, creating a barrier to home ownership and economic mobility as well as a potential drag on consumer spending, a senior Federal Reserve policymaker said Monday.

The phenomenon persists even as the overall picture for US household debt has steadily improved.

A decade after the financial crisis, rising incomes and housing prices as well as steady job creation mean more mature borrowers are in better financial shape, said William Dudley, president of the New York Federal Reserve Bank.

Dudley is also vice chair of the Federal Reserve committee that sets the central bank's benchmark interest rates.

"Despite an improving labor market, overall delinquency rates on student debt remain stubbornly high, and repayment progress has slowed further, likely reflecting the recent introduction of more accommodative payment plans," Dudley said in prepared remarks.

According to research Dudley presented from the New York Fed, student debt levels have risen 170 percent since 2006, reaching about $1.3 trillion by the end of last year.

Furthermore, the number of students who borrow has grown, the amounts they borrow has risen and the rate at which they repay has slowed, all of which has contributed to higher overall debt levels.

Housing market analysts say pent-up demand from millennial would-be homeowners, many of whom delayed leaving their parents' homes during the Great Recession, is one factor driving up housing prices.

However, New York Fed research released Monday found that, while 65 percent of students owed $25,000 or less, those with debt at this level were significantly less likely to own a home by age 33 than people with no student debt at all.

"This finding is consistent with other past and ongoing research here at the New York Fed that points to the potential longer-term negative implications of student debt on homeownership and other types of consumer spending," Dudley said.