With more and more young people choosing to attend college and the ever inflating cost to attend, the current financial situation of the Millennial generation (currently 18 to 35) has certainly had an impact on the United States economy. While the Millennial generation is on track to be the most educated generation yet with 27% of Millennial females and 21% of Millennial males holding undergraduate degrees as of 2014, the amount of money which they collectively owe is rather astounding. As a nation, the United States currently has a collective student debt totaling about $1.3 trillion, accounting for 10% of all outstanding debt, with the average undergraduate-degree-holding borrower owing $30,000. In turn, this overwhelming debt, paired with the still-struggling housing market, has lead to a new disproportion in first-time homeownership. Of the more than 8 million households built in the United States over the past year, renters account for all of them, dipping home-ownership to a near 48-year low of 63.5%.
A new collaborative survey from the National Association of Realtors (NAR) and a division of American Student Assistance called SALT® has found that 71% of non-homeowners who are working on repaying student loans believe that their debt is delaying their ability to purchase a home with more than half expecting to be delayed over 5 years. This survey also revealed that 4 out of 10 borrowers have postponed moving out of a family member’s home due to the amount of their student debt, and according to the White House, in the aftermath of the Great Recession the number of 18 to 34 year olds who lived with their parents increased 28% in 2007 to 31% in 2014. Not only do recent college grads have their loans to worry about, the fact that less and less young people can afford to purchase a home is also hindering the housing market. NAR Chief Economist Lawrence Yun says that the collaborative study shows that while obtaining a secondary degree increases your chance of finding stable employment post graduation which in turn should produce financial stability under which one could purchase a new home, many are putting off buying a home because of how long it takes to pay off loans and how high the interest rates for those loans are. Student loan interest is often double that of current mortgage rates.
In addition, the several hundred dollars a month that borrowers put towards paying off schooling loans over several years equates to thousands of dollars that could be used towards purchasing a home. Among those non-homeowners who attribute their inability to buy a home to their student debt, over 75% – and more than 80% of Millennials – say this delay is because they can’t afford to save for a down payment. On top of this, nearly 70% feel too insecure financially to buy and 63% are unable to qualify for a mortgage because of their high debt-to-income ratios.
SALT® President John Zurick calls out to the United States government, the higher education community, and the private sector to aid in determining an “immediate and practical solution” to demystify the college financing process and empowering the 43 million Americans who are struggling with student debt. Not only could this help benefit the housing market, it can help alleviate the financial strain on graduates and nudge them towards achieving the full potential of their higher education.