Rohit Chopra, the student loan ombudsman for the Consumer Financial Protection Bureau (CFPB), reports that student loan debt is having a strong trickle-down effect on the health of the housing sector. He is urging the industry to seek a securitization cure to create a more financially responsible industry.
The Department of Education and related servicers currently wield a great deal of power in getting debt recovered, with little consideration to the wider impact of such actions. Like the mortgage market, the $1.2 trillion-a-year industry is backed primarily by the U.S. government. Furthermore, Chopra notes, the debt is onerously collateralized with options such as a wage garnishment impacting borrower repayment activity. He comments, "We are already seeing signs of economic drag from student loan debt. The impact on the housing market is the most troubling part. The fact is student indebtedness impacts the credit profile of first-time homebuyers. Three-fourths of the fall in household formation can be directly correlated to student debt."