Federal Reserve: High student debt poses risk to growth’

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.

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.

Millions of student borrowers are paying record relative interest rates on their government loans, according to a Huffington Post review, frustrating efforts by the Fed to reduce borrowing costs for households and businesses.

The U.S. government’s funding costs to borrow for 10 years, measured by the yields investors demand to purchase the debt, has averaged less than 2 percent since the summer of 2011. But rates on the majority of loans taken out by undergraduates from the Education Department have remained since 2006 fixed by law at 6.8 percent.