Personal Finance

U.S. student loan debt is not killing homeownership

Is surging student debt really preventing an entire generation from becoming first-time homebuyers?

That's true, to an extent, but also mischaracterizes education debt as holding most people back, rather than helping them get ahead.

Researchers and economists say there are several reasons why homeownership rates have dropped among the young, as student loan debt has swelled to over $1 trillion.

Student loan debt "is having an impact, but it's on the margin," said Mark Zandi, chief economist of Moody's Analytics.

A soft job market, low wage growth and cautious lenders are other factors affecting first-time buyers, Zandi notes.

Even simple delayed adolescence might play a bigger part than debt, say researchers Jason Houle of Dartmouth College and Lawrence Berger of the University of Wisconsin-Madison.

Their recent study of people who had attended college found a "modest" inverse association between education debt and homeownership.

If debt were a key factor, Houle said, homeownership rates should drop as student debt increases, but that wasn't the case.

"No matter how we sliced the data, we can't seem to show that people with lots of debt are less likely to buy homes than people with less debt," he said.


Another factor that was knocked off the blame list was monthly student loan payments.

While these are "not trivial," the typical monthly burden doesn't deter people from buying, agreed Chris Herbert, research director for the Harvard Joint Center for Housing Studies.

The median renter under 40 faced a monthly student loan payment of $150 in 2010, Herbert found in his own data analysis of the Federal Reserve's Survey of Consumer Finance.

And mortgage lenders consider monthly payments, not total debt, in deciding how much an applicant with student loans can borrow, said Matt Hackett, underwriting and operations manager for Equity Now, a New York-based mortgage lender.

Maximum debt-to-income ratios typically approach 45 percent, and some borrowers can stretch beyond that if they have sufficient savings, Hackett said.

Another study concluded that today's student loan borrowers are not worse off than they were a generation ago.

Beth Akers and Matthew Chingas of the Brookings Institution's Brown Center on Education Policy examined Survey of Consumer Finance data between 1989 and 2013 for households headed by people aged 20 to 40. They found that the percentage of these younger households that owed education debt rose from 14 percent to 38 percent.

The monthly payment burden for these debts, however, remained about the same median 4 percent of income since 1992.

The total dollar amounts were bigger, but that was offset by income gains, Akers said.

Even those with massive debts aren't necessarily precluded from buying homes. About 7 percent of borrowers owed more than $50,000 and 2 percent owed more than $100,000 in 2013. In 1992, only one percent had more than $50,000 debt.

Akers said a quarter of the growth in student loan debt comes from those pursuing more education, especially graduate degrees.

"Everyone's concerned about the 7 percent, but these may be the highest earners in the group," Akers said.

Clearly, some borrowers are struggling with excessive debt loads, and some are certainly being shut out of the housing market. But to characterize a generation of college graduates as overburdened with debt isn't accurate or helpful.

For most people, investments in education pay off, and taking on reasonable amounts of debt is a sensible way to get their degrees.

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