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Soaring Student Debt to Hurt Housing, Consumer Spending: Fed’s Dudley

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                Soaring Student Debt to Hurt Housing, Consumer Spending: Fed's Dudley

Soaring student loan debt threatens to harm the overall economy, especially home ownership and consumer spending, a top Federal Reserve policymaker said on Monday.

The surging debt also might erode colleges' and universities' ability to elevate lower-income students.

New York Fed President William Dudley, an influential monetary policymaker who was citing research from his institution, pointed to rising costs of higher education and student debt burdens as culprits in the troubling trend.

Overall U.S. household debt is expected to surpass its pre-recession high later this year. Proportionally, Americans have shifted away from housing-related debt and toward auto and student loan debt, with aggregate student loan balances $1.3 trillion at the end of last year, up 170 percent from 2006.

Dudley, whose Fed monitors economic indicators but who does not have any control over fiscal policies like college funding, noted that overall delinquency rates "remain stubbornly high" and repayments have slowed, even while the job market improved the last few years.

There are "potential longer-term negative implications of student debt on homeownership and other types of consumer spending," he said at a news conference.

"Continued increases in college costs and debt burdens could inhibit higher education's ability to serve as an important engine of upward income mobility, (and) these developments are important and deserve increased attention."

The New York Fed data showed a shift among lower-income borrowers to auto and student loans, and away from mortgages, and that higher debt levels bring about lower homeownership rates.

Dudley added that sharp rises in the value of housing and stock prices, jobs growth and moderate strength in wages mean that, overall, "the household sector's financial condition today is in unusually good shape for this point in the economic cycle."

He did not comment on interest rates in his prepared remarks. 

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