May 10, 2019, 3:09 PM
by David Rosenberg, Gluskin Sheff
- There is now $1.6 trillion worth of outstanding student loans.
- Student debt is one reason the US from having a normal housing market cycle.
I have to say that while I am no big fan of Elizabeth Warren and most of her left-wing policies, there is one plank that resonates with me, and it's her ambitious strategy to offer a one-time clearance of student debt for 75% of the borrowers — providing much-needed relief for 42 million debtors. And the associated plan to make university tuition more affordable, even if this means playing the role of Robin Hood in the tax system, is another good idea that will have huge long-term benefits to the economy. It is absolutely criminal that the things we need the most, health care and education, are the ones where the cost structures have spun out of control, for many years now.
Let's look at the situation. There is now $1.6 trillion of outstanding student loans, a number that has soared close to 40% in the past five years and by more than 130% over the past decade. The late-payment rate is well above 10%, and there is no way to restructure this debt in today's environment. If you are in arrears on this type of debt, forget getting a FICO score and forget having the leeway to secure any sort of loan for years after missing a payment.
This is one reason why we never did have a normal housing market cycle beyond the "buy for rent" investor craze that begun nearly a decade ago. The home sales share in this economic expansion represented by the first-time buyer rarely got above 30%, whereas a typical bull market in residential real estate sees this share hovering between 40% and 50% in any given month.
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