Tie Loan Payments to Employment Situations
Americans now hold close to $1.2 trillion in outstanding student loan debt making it the second largest form of consumer debt after home mortgages. What are the implications for housing markets, household formation, and economic mobility for the next generation? Are there creative approaches to reduce the burden?
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By Conrad Egan
Student loans taken by optimistic and naive borrowers in anticipation of future increased job prospects, which often don’t occur, are now dragging down the economic recovery, hindering home purchases, and demanding outrageous payments for decades to come.
We can’t do much to aid the current borrowers. But, in the future, we could structure those loans so the payments are indexed and adjusted by the employment situations in focused areas as proposed by Atif Amin and Amir Sufi in their recent book, “House of Debt” to recognize the employment opportunities and thus the payment abilities of the borrowers. To quote, “…recent graduates should be protected if they face a dismal job market upon completing their degrees. In return, they should compensate the lender more if they do well.”
Conrad Egan represents the Affordable Housing Institute.
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