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Student Debt Hits Women and Minorities the Hardest

SS5-1-13In the often-quoted Proverbs 9:1, the wise King Solomon links women, wisdom and houses: “Wisdom hath built herself a house,” says the monarch, making it clear that wisdom leads to prosperity and stability. But, as a couple of new studies on student loan debt reveal, for many women, the wisdom gained in a college education leaves them too burdened with student loan debt to build – or even buy – a house. Women and minority college graduates face more challenges in dealing with debt than their “majority” counterparts, with potentially profound effects on the housing market.

Recent studies by the American Association of University Women and the Center for American Progress found that although student debt issues affect almost three quarters of graduates from four-year colleges, women and members of minority groups face greater obstacles in resolving their debt. The studies, reported in a May 1 2013 article in US News and World Report point out that both these groups typically earn less after college than their white male peers, and must deal with other barriers as well.

For women, the “gender gap” in pay is well known. A woman graduate can generally expect to earn less in the workforce than her male peers even if both complete the dame degree with equivalent course work. Women are more likely than men to take work breaks to care for children and family members, and those periods of low or nonexistent income also affect their ability to repay.

Minority graduates, too, often earn less than their “majority” peers. Unemployment rates are higher for them, too. And for students whose families have different cultural values about debt and money, the loan process may be confusing, with no clear idea where to turn for help. Lower income borrowers may also be more likely to take out riskier loans.

As we’ve seen, the burden of student loan debt trickles into other areas of life, making recent grads reluctant to take on other kinds of debt such as car loans and mortgages. For women and minority graduates, the problem may not be simply reluctance, but an inability to qualify for home loans or other kinds of credit. That means fewer buyers to nurture the housing recovery, and more virtually permanent renters.

A recent study on trends among baby boomers to downsize and sell off large suburban homes raised the question of who would buy these homes since many members of the new generation of potential homebuyers are just not able to gain a foothold in the housing market. That means more homes unsold and a flattened recovery.

If these college grads are largely locked out of homeownership, that might seem to be a plus for investors who need tenants for their rental housing. But the financial situation of these overburdened graduates remains precarious, so property owners can end up dealing with renters who default on rent or renege on a lease as well.

For those who aren’t in school or recently out, the growing national concerns about the runaway train of student loan debt can seem pretty remote. But for residential homebuyers and investors following Jason Hartman’s strategies, the student loan debt crisis reaches far beyond the halls of academia.  (Top image: Flickr/jorogon)

The Solomon Success Team

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