The staggering amount of outstanding student debt — nearly $1 trillion owed – is beginning to impede the U.S. economy as a whole, a new report from the New York Federal Reserve suggests, chiefly by robbing the housing market of its richest crop of new buyers: young college graduates.
The statistics in the report are dismaying in themselves. With the number of borrowers approaching 40 million nationally, including more than 40 percent of 25-year-olds, the average balance on their loans has risen to $25,000. About 6.7 million of all student borrowers, or 17 percent, are delinquent on their payments three months or more.
"Delinquent student loan borrowers have a very difficult time accessing credit and the share of those borrowers is greater today than in the past," said Donghoon Lee, a senior economist for the New York Fed and one of the authors of the report.
(Read More: Student Debt Climbs as Credit Gets Tighter)
For the average homeowner, the worst news is that these overleveraged and defaulting young borrowers no longer qualify for other kinds of loans — particularly home loans. In 2005, nearly nine percent of 25- to 30-year-olds with student debt were granted a mortgage. By late last year, that percentage, as an annual rate, was down to just above four percent.
The most precipitous drop was among those who owe $100,000 or more. New mortgages among these more deeply indebted borrowers have declined 10 percentage points, from above 16 percent in 2005 to a little more than 6 percent today.
"These are the people you'd expect to buy big houses," said student loan expert Heather Jarvis. "They owe a lot because they have a lot of education. They have been through professional and graduate schools, but their payments are so significant, they have trouble getting a mortgage. They have mortgage-sized loans already."