Young Buyers: Student Debt Kills Ownership

April 20, 2018

Student loan debt is creating a barrier to homeownership. About 45 million people in the U.S. have student debt, with the average borrower owing more than $30,000, according to Student Loan Hero, a resource for managing education debt. Nearly one-fifth of borrowers owe $100,000 or more, according to data from the National Association of REALTORS®. 

Paying for student loan debt is taking up a sizable portion of people’s incomes. It also threatens their credit scores and makes it difficult to save for a down payment on a home. 

“Student loan debt holders do want to own a home; that’s part of their American dream,” Jessica Lautz, NAR’s managing director of survey research, told CNBC. “It’s just really hard to get there right now.” 

More than 80 percent of people between the ages of 22 to 35 with student loan debt who have not purchased a house yet blame their debt, according to NAR’s research. 

The Federal Reserve’s data shows that for every 10 percent in student loan debt a person holds, their chance of homeownership falls 1 to 2 percentage points during their first five years after school. 

Further, nearly one-fifth of people with student loans who apply for a mortgage are denied due to their debt-to-income ratio being too high, according to NAR. 

“The bank looks at it as ‘unsecured debt,” says Doug Amis, a certified financial planner at Cardinal Retirement Planning in Cary, N.C. “With a mortgage, you have the asset of the house. If you stopped paying, you could foreclose on the house. But you can’t go and foreclose on an education.”

Source: “Why Buying a Home Can Be Almost Impossible With Massive Student Loan Debt,” CNBC (April 19, 2018)