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The Real Truth About Student Loans and Home Ownership

College Graduation

It seems common knowledge that the more education one receives, the more powerful the earning potential. However, when earning power comes at the price of crippling student loans, when does higher education really start to pay off? With student loans skyrocketing over the last decade, education debt is impacting several sectors of the economy—most strikingly in the housing sector.

Now, more than any other time in history, student loan debt is making a larger impact on home purchase decisions. Consider these recently released statistics:

America’s student loan debt totaled $1.1 trillion as estimated by the Federal Reserve Bank of New York. That’s up from $241 billion in 2003.

More than 40 million Americans have at least one current student loan. This includes senior citizens, who, instead of funding their retirement, are still paying off their education.

An estimated 1.5 million Americans under the age of 40 make a student loan payment between $500 and $750 each month. When you consider that 20-somethings are more nervous than ever to enter the housing market, the outlook for neighborhood stability gets even more grim.

A recent report finds that student debt could reduce home sales as much as eight percent this year. That’s 414,000 homes that could remain on the market because their potential homebuyers are straddled with debt of their own. That same study estimates that for every $250 per month owed in student loans, the purchasing power by the same potential home owner reduces by $44,000. This makes affording and qualifying for mortgage loans that much more difficult.

While deflating, it’s important to remember that the relationship between student loan debt and homeownership is both complex and necessary. The only way to truly overcome this is through a broad-spectrum approach from the ground up, from borrower families and universities all the way to the policy makers and federal student loan administrators. The consequences of this shift in debt crisis will no doubt have a lasting impact on how people obtain higher education and the importance they can and will place on home ownership in the future.

 

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