Month after month, college graduates slowly pay off their student loan debt. These loans represent the four to five years students studied for an array of classes and pulled all-nighters to cram for exams. Now that their education is complete students also have outstanding student loan debt in the tens (or even hundreds) of thousands of dollars.
So how does student loan debt affect a college graduate’s ability to purchase their first home?
According to a recent study by the National Association of Realtors, and the nonprofit group American Student Assistance, millennials attributed their student loan debt for the delay of their first home purchase by approximately 7 years.
The results of the above study are based on a 41-question survey answered by more than 2,200 people aged 22 to 35 who are currently repaying their student loans.
Saving for a down payment for a home or qualifying for a mortgage is difficult due to the student loan bills that can add up to hundreds of dollars per month.
A potential borrower’s debt–to–income ratio increases due to their loan balances, a circumstance often thoroughly analyzed by loan officers before they issue a mortgage.
According to realtor.com®’s chief economist, Danielle Hale, “While in general, workers with a college degree earn higher incomes and have higher homeownership rates, these survey results suggest those borrowing for college need help understanding the costs of college and consequences of debt… Otherwise, decisions students make at age 17 or 18 have ramifications on their life and purchase decisions for decades.”
Realtor.com® states that millennials average around $41,200 in student loan debt, but make only an annual average salary of $38,800. This could explain why only 20% of them currently own a home, and why about 83% of them who don’t own a home blame it on student loan debt.
While student loan debt is not just making it harder for millennials to become initial homeowners, it’s also making it harder for existing owners to sell their homes and upgrade to a nicer ones. According to the study, this typically delays trading up by approximately three years.
About two-thirds of younger millennials (born between 1990 and 1998) additionally indicate that the burden of student loan debt makes it more difficult to afford to move or rent an apartment without roommates.
About 63% of those surveyed said that they would put more of their money toward purchasing a home if they didn’t have student loan debt.
“The tens of thousands of dollars many millennials needed to borrow to earn a college degree have come at a financial and emotional cost,” NAR’s chief economist, Lawrence Yun, said in a statement. “Even a large majority of older millennials and those with higher incomes say they’re being forced to delay homeownership because they can’t save for a down payment and don’t feel financially secure enough to buy.”
A total of 79% of graduates attribute most of their debt to four-year colleges, 29% to graduate and postgraduate degrees, and 19% to two-year colleges. (The numbers exceed 100% because many students went to more than one academic institution.)
Yun went on to say that the financial burden of student loan debt, which weakens the economy and contributes to widening inequality, is certainly far from ideal.