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Student debt may have kept 400,000 young adults from buying homes

By on April 19, 2021 0

That the problem of our country’s $ 1.5 trillion student loans fundamentally changes the economic lives of today’s young adults is a subject of frequent debate among policymakers, experts, and borrowers themselves – many of them. will tell you emphatically that it is a drag on their future.

A new study aims to find out exactly how much student debt plays a big role in young adults’ ability to reach a major financial milestone: buying a home.

The increase in student debt among young adults between 2005 and 2014 explains a drop of 2 percentage points in the homeownership rate of young adults, according to a study article to be published in the Journal of Labor Economics by Federal Reserve Economists.


Over 400,000 more young adults would have owned homes in 2014 without the increase in student debt.


– A forthcoming article in the Journal of Labor Economics by Federal Reserve economists

The homeownership rate of young adults, defined as those aged 24 to 32, declined 9% overall over this period, suggesting that rising student debt is responsible just over 20% of the drop, the researchers found.

This means that over 400,000 more young adults would have owned a home in 2014 without the increase in student debt.

“We always sell people the idea that higher education, whatever its cost and whatever the level of debt, is the ticket to a better, more stable and healthier life,” said Julie Margetta Morgan , member of the Roosevelt. Institute, a progressive think tank. “For a lot of people, that’s not the case.”

The study, which was summarized in an article published by the Fed on Wednesday, adds nuance to our understanding of the complicated relationship between student debt and homeownership. This adds to the growing evidence that student debt has an impact on how young adults approach other markers of financial adulthood, such as marriage and retirement, a trend that could have implications for school. ‘economy.

A college education also helps young people earn more

There are certainly young adults for whom student debt has made home buying possible by providing the financing they need to attend college and improve their chances of earning a decent income. But other evidence suggests that rising college costs and growing student debt have made home buying more difficult for young adults with a college education.

The Fed economists’ study aims to estimate the effect of student debt on homeownership, assuming the borrower’s education remains the same. For every additional $ 1,000 in student debt, the homeownership rate for 4-year-old public college students in their mid-20s declines 1.8%, the researchers found. This translates into a delay of about four months in homeownership.


The results suggest that an additional $ 3,000 in student debt will delay a young adult by about a year in their quest to buy a home.

The results suggest that an additional $ 3,000 in student debt will delay a young adult by about a year in their quest to buy a home.

Of course, there are other reasons besides student debt that today’s young adults are less likely to own a home than the 20-plus generation of previous generations. The upheaval in the labor and housing markets caused by the Great Recession means that for many 20’s and 30’s a home may not seem like a reliable investment for their limited income.

In addition, it is not uncommon for this group to live in cities where the cost of living is high, both limiting the amount they can save for a down payment and making it difficult to access the home market. housing. In addition, the stricter lending standards following the housing crash likely made it more difficult to qualify for a mortgage.

Still, it’s hard to separate all of these factors from the role student debt plays in the life of a young adult, said Margetta Morgan. For example, young people between the ages of 20 and 30 may find themselves living in expensive cities, as these are the only places where young adults can be paid enough to repay their loans.

Instead of providing opportunities to fulfill the American dream, in many cases student debt “helps people barely walk on water,” said Margetta Morgan. “In a lot of ways, it actually just restricts people’s freedom. “

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