Although education debt can be an obstacle to homeownership, it may not be as bad as it seems.
Student loan debt has ballooned to more than $1 trillion in the U.S. But, despite what you’ve probably read, the student loan burden isn’t killing homeownership for young adults.
According to Liz Weston of Reuters, student loan debt is just one of several reasons that young people aren’t purchasing homes, and it’s not the most important factor. She wrote:
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.
A recent study by Jason Houle of Dartmouth College and Lawrence Berger of the University of Wisconsin-Madison found a modest association between student loan debt and homeownership, but said it isn’t the main cause of declining homeownership among young adults.
“Instead, it is likely that declining homeownership among young adults, which predates the recent rise in student loan debt, is more responsive to structural changes in the economy and changes in the transition to adulthood,” the study said.
Chris Herbert, research director for the Harvard Joint Center for Housing Studies, told Weston that the typical monthly student loan payment isn’t big enough to dissuade people from purchasing a home. Weston wrote:
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.
According to Weston, educational debt is being wrongly blamed for holding people back. “For most people, investments in education pay off, and taking on reasonable amounts of debt is a sensible way to get their degrees,” Weston wrote.
For more information on student loan debt and its implications click here.
I graduated with about $17,000 in student loan debt, and then I (stupidly) tacked on an extra $10,000 in one year of post-baccalaureate studies. My monthly payment is about $200. I consider myself fortunate when I look at what a lot of my friends have to pay back. I’m also lucky that my husband doesn’t have student loan debt, so education debt didn’t factor in too much when we purchased our first home.
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