The many perils of student debt

SOMEONE SAID to me that I make too big a deal of student-loan debt.

Really?

I heard similar comments before the housing crisis. We now know how that turned out.

Next month, thousands of college graduates will see an end to their six-month loan grace period and will have to start making payments. Many will easily handle the payments. Others will struggle.

When you look at the average debt that graduates have - just shy of $30,000 - the amount doesn't seem so daunting. But the average figure doesn't reflect the many people who are carrying much more than that. It doesn't account for the many people who have the debt and no degree. And it doesn't address the psychological ramifications of owing this money.

Let's look at the impact such debt has on how people feel about other financial decisions. Turns out that the burden of student debt is affecting homeownership and people's attitudes about it, according to the second annual America at Home survey commissioned by NeighborWorks America, a Washington, D.C.-based nonprofit community-development corporation.

When survey participants who have student debt and were thinking of buying a house were asked what was the biggest obstacle that stood in their way of homeownership, their top answer was the student loans. This was ahead of not having a down payment, inability to afford a house in a preferred neighborhood, lack of job security, and weak or bad credit. Yet among all respondents, a lack of a down payment and job security topped their list of barriers. Student debt ranked last.

"The longer Americans with student-loan debt expect to be paying off debt, the more they worry and the more they perceive that debt to be an obstacle to homeownership," the NeighborWorks report said.

Although homeownership remains one of the top aspirations for Americans, people with student loans are backing away from purchases, wondering if it's worth it at all while they are still burdened with this expense, said Chuck Wehrwein, acting CEO of NeighborWorks.

"If we don't mitigate the effect student-loan burden is having and will have for years to come on homeownership, the country will lose a significant amount of economic activity and hundreds of thousands of people will be unable to benefit from the stability and financial value that homeownership has been proven to offer," Wehrwein said.

People with student loans shouldn't opt out of homeownership because they think it is unobtainable, said Marietta Rodriguez, NeighborWorks' vice president for national homeownership programs and lending. But having that debt means they may need more housing education and coaching to manage it along with a mortgage, she said.

The NeighborWorks survey falls in line with findings from Gallup, in partnership with Purdue University and the Lumina Foundation, which looked at graduates with debt higher than the mean average.

An examination of Americans who graduated from college between 1990 and 2014 found that students with $50,000 or more in undergraduate student loans are less likely than folks who didn't borrow to be thriving in four of five elements of well-being: purpose, financial, community and physical. The survey describes the five elements the following way:

* Purpose: Liking what you do each day and being motivated to achieve your goals.

* Social: Having supportive relationships and love in your life.

* Financial: Managing your economic life to reduce stress and increase security.

* Community: Liking where you live, feeling safe and having pride in your community.

* Physical: Having good health and enough energy to get things done daily.

The Gallup-Purdue Index found the widest gaps in well-being in the financial and physical areas. Even as time went on and the debt was paid off, it weighed heavily on people.

So are we making too much of the debt?

Imagine how much pain we could have avoided if more people listened to concerns about the upsurge in mortgage debt.

I know that people will continue to borrow to go to college. For many, a degree is an entry into better employment. But we've got to stop and take an assessment of how much is too much. We've got to try to put the brakes on the level of borrowing, or at least sound the alarm loud enough that families will consider alternatives such as encouraging their children to commute to school or attend a community college for two years.

We can't make enough noise about the more than $1 trillion in student loans if it will rescue some people from putting themselves in a trap that will make their financial and physical lives so much harder in the years to come.