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The Fed Admits Student Debt is a Huge Risk to Recovery

“Policy makers on the Federal Reserve’s interest-rate setting panel have for the first time identified high student debt burdens as a risk to economic growth, adding to a growing chorus of government officials concerned about households’ education borrowings.

At $1.1 trillion, according to the Consumer Financial Protection Bureau, outstanding student loan debt is the largest consumer debt class after home mortgages. Financial regulators, the U.S. Treasury and the New York Fed have all warned about the possible danger student loans pose to financial stability and the broader economy.

But prior to its March meeting, the Federal Open Market Committee, which sets interest rates that affect trillions of dollars of loans and securities, had never before mentioned student loans as a possible downside risk to the economy, according to a review of past meeting minutes.

According to newly released minutes from the March meeting, some members of the panel mentioned “the high level of student debt” as a risk to aggregate household spending over the next three years.

“There is increasing consensus that student loan debt is having a broader impact on the economy than we think,” Rohit Chopra, the CFPB official responsible for the student loan marketplace, said in an interview.

The committee’s mention of student debt burdens is likely to further discussion in Washington over what, if anything, policy makers should do to rein in what has been diagnosed as a growing problem….”

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