Student Loans Fuel Wealth Gap

The net worth of Americans is $85 trillion, the Federal Reserve says. That’s almost double what it was in 2000. But not everyone is celebrating.

July 13, 2016

During the early 1980s, the median net worth of a household headed by someone under 35 was $15,260, while for a household headed by someone over 65 it was $120,500. You would expect this roughly 10-to-1 wealth difference, because people’s earning power and savings grow over time.

What we’re seeing today is quite different. As of 2013, the gap between old and young is twice that: 20 to 1. The typical older household now has $210,500 in wealth compared to $10,500 for a younger household. I expect that gap to widen further when more data come out.

No doubt the cause is multifaceted. But one important factor is home ownership opportunity. The home ownership rate among the older generation has been fairly steady over the recent housing cycle of bubble-bust-recovery, with nearly 80 percent of those over 65 owning a property. But the home ownership rate of households under 35 has fallen to 34 percent from the recent cyclical peak of 43 percent. That’s why the first-time home buyer percentage is at its lowest point in 30 years.

Young people have it bad. Student loan debt is one reason. The burden has tripled over the past decade, with recent graduates carrying an average of $29,000. A survey we completed in mid-June found that 71 percent of graduates who are responsibly paying back their loans are delaying their home purchase by five years because of their debt.

Money doesn’t grow on trees, so free college education is probably impossible. But let’s ask why interest rates on student loans are so high, ranging from 7 to 12 percent when interest rates on other loans are extremely low? We need a way to refinance student loans into lower rates. That’s a solution we’re backing in Congress, and it’s one of the ways we can support home ownership among young buyers and start to close that wealth gap.

Lawrence Yun
Chief Economist and Senior Vice President of Research at the National Association of REALTORS®

Lawrence Yun is chief economist and senior vice president of Research at the  National Association of REALTORS®. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1.1 million REALTOR® members. Dr. Yun creates NAR's forecasts and participates in many economic forecasting panels, including Blue Chip and the Harvard University Industrial Economist Council. He appears regularly on financial news outlets and is a frequent speaker at real estate conferences throughout the United States. USA Today recently listed him among the top 10 economic forecasters in the country.

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