The Federal Reserve recently released a new publication titled Consumer & Community Context. And in the inaugural issue, they explore the effect of student debt on home ownership.
The notable statistic is that home ownership among people ages 24–32 dropped considerably in the decade from 2005 to 2014 — a full 9 percent. Based on this and other considerations correlated to student debt, the authors estimate that this drop equates to around 400,000 people who did not buy homes due to their student loans.
That’s a stunning number when you think of the massive effect that home buying and home ownership have on our economy.
But more than that, it demonstrates the significant drag that student debt is having among a large chunk of our population. Keep in mind, the estimate of 400,000 people is only representative of people ages 24–32. So even if this number is a bit high, it excludes many people of other ages who are missing out on home ownership due to their student loans (or student loans for their children).
For people reading this who aren’t personally familiar with how this happens, consider a typical student debt load around $30,000 or loan payment of $275 per month. For someone with a median salary, roughly $55,000, qualifying or affording a mortgage would be difficult to impossible.
The counter position is often a simple dismissal: “Well, too bad. They shouldn’t have taken on that student debt.” But this lacks deeper consideration.
First, research has affirmed that a college degree is nearly imperative for earning a higher salary, which is often the foundation for getting a mortgage. Few people get a mortgage while making $25,000 a year. And worse yet, most people without college degrees fall into hourly work or “the gig economy,” both of which nearly guarantee denial of a mortgage.
Second, lives change after college. Things seem good when you take on student debt. You spend a few years or so figuring out your career path, and then around 30, you should be in a position to buy a home. But guess what? You’ve incurred a major medical expense (debt). Or you have an aging or sick parent who needs your help. Or perhaps your career path hasn’t gone as expected. Suddenly, what was a seemingly minor expense (your student loan payment) is having a huge effect on your budget. And buying a home is out of the picture.
Bringing this full circle, what’s affecting 400,000+ people micro-economically is certainly affecting all of us macro-economically. Don’t feel bad for the people I’ve described above if you choose, but the consequences are having an impact on you regardless. Our national economy is greatly dependent on the market factors of home ownership, which is precisely why it’s encouraged in our tax code (such as mortgage interest being tax-deductible).
It’s time to likewise bring greater tax benefits to people who are holding student debt. This is why Undebted is working to make tax-free “scholarship” money possible for the millions of people who are out of college and experiencing economic hardship due to their student loans.
We’re working to free these people from their student debt so they can get back to their dreams — and home ownership is a big one.