Morning Must Reads: Recovery Act Turns 3 and the Student Loan Debt Bomb

Three years have passed since the passage of the American Recovery and Reinvestment Act. Michael Linden of the Center for American Progress explains the impact of the Recovery Act on the economy. 

 

On the state budget, WITF shares a link to help you estimate the impact of cuts to education spending in your area.

An education group that's based in central Pennsylvania has created a way to display the effect that cuts to public education could have had on the state's school districts. The Pennsylvania State Education Association in Harrisburg has launched an online calculator that shows the total dollar amount each district is expected to have lost within the last two fiscal years.

Both The Philadelphia Inquirer and the Pittsburgh Post-Gazette have good stories this morning on the "student loan debt bomb."

Part of the problem is that most students do not know what they are getting into. The new Consumer Financial Protection Bureau is working on a one-page financial-aid shopping sheet to help students figure out how much in federal loans and private loans they should consider taking on, and what kind of loan repayments will follow after graduation.

 

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 and often have relatively new credit profiles, lower-than-average credit scores and fewer economic resources to make a large down payment, the report said...

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 of Cranberry, publisher of FinAid.org, a student loan website. Recent college graduates carry an average debt load of more than $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 co-signed their loans and older Americans who have gone back to school for job training.

"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.

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