Americans currently owe a collective $1.5 trillion in student loan debt. More than two-thirds of people who attended college have student loan debt. In 2017, the average student had about $40,000 in debt, more than double the average amount in 2000.
There are countless articles in the popular media about the impact that growing student debt is having on young adults forming households, starting families and buying homes.
On that last point, a survey conducted by the National Association of REALTORS showed that 83% of non-homeowners with student loan debt say that debt is keeping them from buying a home. According to the REALTORS, young people are pushing homeownership back an average of 7 years as a result of debt loads.
There are certainly other factors that drive homeownership trends but it seems as though student debt is important.
Recent research by the Federal Reserve Bank has quantified the relationship between student debt and homeownership. According to this new study, about 20 percent of the decline in homeownership among young adults can be attributed to the increase in student loan debt. Student debt, therefore, is not the only factor associated with lower homeownership rates. But Fed researchers find that about 400,000 more young adults in the U.S. would own homes if it wasn’t for the rising student debt burdens.
Furthermore, other research has found that the negative impact of student debt on homeownership disproportionately impacts people of color, which is contributing to the widening wealth gap in the country.
Is the lesson from this research that young people should not take on student debt to attend college? Not exactly. We know that compared to people who have a high school degree, college graduates are more likely to be employed, less likely to live in poverty and have higher average incomes. College graduates are also significantly more likely to be homeowners than are high school graduates. One key is for young adults—and all of us!—to be cautious when taking on debt, including student debt. The value of a four-year degree is not typically related to the price tag of the tuition. A second big takeaway is that people who take on student debt but who don’t finish college programs are at a significant disadvantage.
Finally, for people interested in housing policy and housing market conditions, it is worthwhile to keep track of trends in student debt, college attendance and college tuition to understand how these dynamics will shape future housing demand.