The $1.5 trillion in U.S. student loan debt could eventually pose a threat to the economy, Federal Reserve Chairman Jerome Powell warned Thursday.
“It’s not something you can pick up in the data right now, but at this goes on, and as student [debt] gets larger and larger, it absolutely could hold back growth,” Powell said at a Senate Banking Committee hearing.
Research from the central bank and outside groups indicates that student debt hurts people who struggle to pay it off, Powell said, by dinging their credit and delaying major purchases. “It affects the entire path of their economic life,” he said.
Aggregate student debt has soared in the wake of the recession a decade earlier. Delinquency on student loans shot up even as the economy recovered, and has remained high since. The total balance of delinquent student loans was 11 percent at the end of 2017, according to the Federal Reserve Bank of New York.
Powell cautioned that it’s important that students be able to borrow to finance their educations, but said they might not understand the risks that come with student loans. He also questioned the difficulty in getting student loans discharged in bankruptcy.
“I think alone among all kinds of debt, we don’t allow student loan debt to be discharged in bankruptcy,” he said. “I’d be at a loss to explain why that should be the case.”
Janet Yellen, Powell’s predecessor at the central bank, raised similar fears about student debt during her tenure, and said during congressional testimony that high student loan balances could delay people from buying housing.
