WASHINGTON — The U.S. Consumer Financial Protection Bureau warned on Wednesday that the economy will soon feel the effects of surging student loan debt unless steps are taken to ease the burden on existing borrowers.
The agency, charged with protecting consumers from the financial markets, reported its findings at a public hearing in Miami, Fla., after analyzing about 28,000 responses from individuals, consumer groups and other organizations to a February query on the effects of student loan debt.
U.S. student loan debt, which now exceeds $1 trillion, has come under focus as lawmakers and economists debate its effect on the economy.
According to a CFPB analysis, student debt affects borrowers’ credit and may limit their ability to start small businesses, save for retirement or invest in new homes or cars.
Rural communities are struggling to attract healthcare professionals and teachers who take higher-paying urban jobs that allow them to pay off debt, the CFPB said.
“We hear from many who say they just need to live with their parents until they weather the storm or tackle this debt, which could lead to delayed economic activity,” Rohit Chopra, the CFPB’s student loan ombudsman, told reporters.
Americans aged 18-to-34, who decide to live with their parents to cut expenses, account for about $100 billion in withheld or delayed spending that would be pumped into the economy if they set up new households, Chopra said.
Student loans are the only kind of debt that continued to rise through the financial crisis, according to data from the New York Federal Reserve Bank. The average borrower owes about $27,000.
Delinquency rates also have spiked, as the lingering effects of the recession make it difficult for recent graduates to find jobs. About 6.7 million borrowers — out of 37 million — are at least 90 days delinquent on loan payments, the New York Fed said.
Recent discussions among lawmakers in Washington have focused on making student loans more affordable for future borrowers. Fewer solutions have been offered for easing the burden of already existing debts.
The agency called for refinancing as a way to offer some relief to existing borrowers and allow them to take advantage of historically low interest rates.
“With improved credit, many borrowers could get ahead and climb the economic ladder,” Chopra said. “Most borrowers aren’t looking to get off the hook-they are just looking for a repayment system that works.”
(Reporting By Elvina Nawaguna; Editing by Marilyn Thompson and Leslie Gevirtz)