Student Loan ‘Debt Strikes’ Could Hurt The Mortgage Business

Patrick Barnard
Written by Patrick Barnard
on April 01, 2015 No Comments
Categories : Blog View

BLOG VIEW: Student loan debt is a major reason many millennials are being denied mortgages. Now, there is a growing movement by some of these borrowers to simply refuse to pay back the debt.

A recent ‘debt strike’ organized online by 15 people has now grown to include more than 85 disgruntled borrowers – due in part to media attention – and it's possible the movement will continue to blossom in the weeks and months to come, an article in the Washington Post says.

It's a trend that has caught the attention of the government: The Consumer Financial Protection Bureau is reportedly meeting with a group of these borrowers this week to address their demand for debt cancellation.

It's also a trend that is extremely risky: Not only do these borrowers put their financial futures at risk, due to the impact on their credit scores, but the loans themselves are backed by the federal government – meaning the defaults will be covered by taxpayers.

The movement comes as the Department of Education and other federal agencies are considering – at the request of the Obama administration – whether to allow student loans to be discharged in bankruptcy proceedings.

In March, the White House introduced a ‘Student Aid Bill of Rights,’ which would require that every 18-year-old in the U.S. – regardless of ability or interest – to be granted access to a college education and to provide government loans to finance that education. The measure would also put into place a payback plan set by the government and would require debt collectors to treat students who are in default ‘fairly.’

As part of the proposal, Obama has instructed the federal agencies to ‘[clarify] the rights of federal student loan borrowers in bankruptcy’ and consider ‘possible changes to the treatment of loans in bankruptcy proceedings and when they were borrowed under fraudulent circumstances.’

Of course, such a measure is unlikely to pass in the Republican-controlled Congress.

Meanwhile, if this trend of ‘debt striking’ grows to include a sizeable percentage of people holding student loan debt – and all of those people end up defaulting on the loans – it could mean that even fewer of these folks will qualify for mortgages in the years to come.

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