It seems obvious that owing lots of student debt should make
it more difficult to buy a house. After all, if you’re stuck paying interest on
college loans, it’s hard to save up for a 20 percent down payment. And now that
subprime lending is out of fashion, banks don’t like lending to customers with
lots of debt compared with their income, which describes an awful lot of young
bachelor's degree holders.
Indeed, the Federal Reserve Bank of New York reports
today that in 2013, student debtors between the ages of 27 and 30 were
less likely to own a home—or, specifically, to have a mortgage—than their peers
who were student-debt free. Homeownership rates have fallen fast among all
young adults since the recession. But, as shown below, they’ve dropped most
precipitously among those who borrowed for school.
There’s one key detail this graph leaves out, however, which
the Fed shared in aseparate report from early last year (and which I've written
on before). It turns out that, at the end of 2012, borrowers who were
current on their student loan payments were actually more likely
to take out a mortgage than other young adults. Borrowers who were delinquent
on their student loans, however, took out barely any mortgages at all. In other
words, young people who already couldn't handle their debt simply weren't in
the market for houses.
That might sound like a self-evident point, but it's an
important one. If student borrowers with good credit records were noticeably
absent from the mortgage market, it would suggest that either a) banks were
avoiding them or b) millennials had collectively decided to pay off their
college and grad school debts before moving on to big purchases. There might be
some cases where that's true, but it doesn't seem to be the general rule. After
all, the young people most likely to buy a house were those who still owed at
least $100,000 on their educations.
The bad news is that student loan delinquencies and defaults
exploded after the recession, which is a likely reason why the Fed finds that,
on average, young adults who borrow for school have lower credit scores than
those who don't. Bad education debt has created a class of adults who will
probably have trouble getting credit for quite some time. And until that
changes, they'll be renters.(Source: slate.com)
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