Student Loan Rate Hike Could Squeeze Auto Originations
It should come as no surprise that student loan debt has surpassed $1 trillion, as two-thirds of students are already in debt when they graduate college. In fact, the Federal Reserve Board of New York reported that there are approximately 37 million student loan borrowers with outstanding loans. 
As if today’s record tuition costs aren’t enough, a 2007 law that cut student loan rates expired July 1, and the government’s impending decision to double interest rates to 6.8% on new student loans could affect 7 million students. Lawmakers are expected to make a decision about the rate increase Monday.
Student loan debt isn’t just a burden of young twentysomethings, though. More than 60% of the $1 trillion is owed by borrowers older than 30, and 15% by those older than 50. Recent data from a ProgressNow survey discovered that, on average, it takes 20 years for a borrower to pay off student debt.
Such a timeframe can cause those borrowers to postpone major purchases such as a car or a home, which affects sales and originations. During the past 10 years, borrowers who paid off a student loan were more likely to buy a new car as opposed to used, and according to ProgressNow, there is more than $6 billion lost each year in new-car purchasing power that’s tied directly to student loan debt. On the flip side, debtors currently paying on student loans are more apt to buy a used vehicle than a new one.
Should student debt continue to climb as is expected, these and future grads might not be able to secure home or auto loans. Because they’re making such high monthly payments — $499 for holders of bachelor’s degrees and $653 for graduate or professional degrees, on average — many lenders may consider those individuals risky borrowers.
What do you think?
