Student loans, another dark cloud over the U.S. housing market

Ballooning loans could hurt recovery.


At 3 a.m. on his only day off after an 87-hour work week Matthew Moeller, a gastroenterologist based in Michigan, had finished typing what he thought was a very important letter. I found it via Quartz, which republished it from the physician’s blog where it was originally posted. The opening lines read:

Dear Washington, D.C.:

I am writing this letter because I feel that our leaders and lawmakers do not have an accurate picture of what it actually entails to become a physician today; specifically, the financial, intellectual, social, mental, and physical demands of the profession.

Half-way through the letter, Moeller continues:

… with medical school completed, I was only halfway through my journey to becoming a doctor. I recall a moment then, sitting with a group of students in a room with a financial advisor who was saying something about how to consolidate loans. I stared meekly at numbers on  a piece of paper listing what I owed for the two degrees that I had earned, knowing full well that I didn’t yet have the ability to earn a dime. I didn’t know whether to cry at the number or be happy that mine was lower than most of my friends. My number was $196,000.

$196,000. That was the bill, for the tuition, the tests, the books, the late-night pizza. $196,000 financed through a combination of student loans, personal loans, and high-interest credit cards, now consolidated, amalgamated, homogenized into one life-defining number for my personal convenience.

That was when Moeller was 26. At age 32, when he had completed his residency and started earning a full salary as a doctor, the number had become $230,000.

Admittedly, Moeller’s story is a bit unusual — unusual in that his debt, as he himself points out, is actually rather small for someone who has 17 years of higher education training in the U.S. It’s easy to rack up similar figures pursuing degrees that will never lead to the high salary an M.D. eventually earns.

And yet, the ranks of Americans willing to dig themselves that very financial hole keep swelling. Student debt was the only kind of borrowing that kept growing through the recession, as people thought additional training would give them an edge in a tough job market. And the financial holes are deeper than they used to be, as healthy demand for advanced degrees contributed to keep education costs rising even as the economic growth dwindled. By the end of 2011 the collective national student debt bill had reached $1 trillion, according to the U.S. Consumer Financial Protection Bureau. Three months into 2013, banks have had to write off $3 billion in student loans, up 36 per cent from the same period last year, as many recent graduates remain unemployed and penniless.

Numbers like Moeller’s ominous six-digit don’t just hang over the head of freshly-minted degree holders — they are likely weighing down the recovery too. “While this debt does not present direct risks to financial institutions, consumers with large student debt burdens may spend less and are more likely to have difficulty securing a mortgage,” the U.S. Treasury said in a 2012 report.

As I noted in a recent post, residential real estate might be particularly vulnerable to this problem. Yield-seeking investors might be helping the U.S. housing market get a spring start, but whether and to what extent the current momentum will hold up depends on how many young households will be able to purchase a house. With education bills as big as small mortgages, it’s easy to see why many would opt to pass on the white picket fence dream.

Erica Alini is a California-based reporter and a regular contributor to, where she covers the U.S. economy. Follow her on Twitter: @ealini.




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