Having confessed to the fact that Fed "forecasts" are as useless as any other guess (and not commitments), NY Fed's Bill Dudley admitted this morning that the Fed-inspired student-loan bubble is a debt overhang that both inhibits home ownership and is a headwind to economic growth.
“If you look at the Summary of Economic Projections, it’s a forecast” and not a commitment, New York Fed President William Dudley says in New York at press conference on trends in household borrowing and student debt.
We would tend to suggest it was not even that Mr. Dudley…
But the real headlines were for the research report his PhDs had created that suggested – shock, horror – that gorging one's self on cheap credit in the short-run to get an education that is worth less each day (because any Tom, Dick, or Dufus can now get to college – because it's fair and just and right) is potentially a bad thing and could hamper the long-run economy.
No shit, we hear you cry. But let's let the PhDs explain… Student debt has more than doubled over the past decade to $1.3 trillion. But a significant minority of borrowers are defaulting on their student loans and in turn harming their credit and ability to purchase homes, the report shows.
More than 1 in 10 borrowers are at least 90 days behind on their student debt. The delinquency rate for student loans is far higher than it is for other forms of credit, including mortgages, credit cards and auto loans.
Only about 5% of student-loan borrowers owe more than $100,000. But they account for almost a third of all outstanding student debt. Borrowers on average leave school owing about $34,000, up nearly 70% from a decade ago.
Student debt appears to dampen homeownership rates among those with the same level of education, the report said.
…our analysis shows that for any given level of educational attainment, those with student debt are less likely to own a home in their early thirties than those who completed their education without taking on as much—or any—debt.
To the extent that the statistical associations we uncovered reflect a causal impact of debt on homeownership, they have important implications for the housing market and future spending behavior.
Homeownership represents an important means of wealth accumulation, with housing equity being the principal form of wealth for most households.
So, changes in the way we finance higher education, with an increased reliance on student debt, may have important implications for the housing market and the distribution of wealth. We expect to report new findings from ongoing research on this topic in the future.
So after driving down rates to 5000 year record lows to force cheap credit on the world to inspire some as-yet-unsighted animal spirits real recovery, The Fed now suddenly sees the light and realizes that burdenning people with excess debt may not be the best idea after all.
As far as Mr. Dudley's sudden discovery of the common-sense lobe of his brain, we have one word… "brilliant"