How Student Loans Impact Homeownership in America

Student Loans: A Major Barrier to Homeownership

Many Americans, particularly millennials, are grappling with significant student loan debt, which affects their daily lives and their ability to purchase homes. According to a recent report from the National Association of REALTORS® (NAR), student debt is a primary obstacle preventing potential buyers from saving for down payments or qualifying for mortgages due to unfavorable debt-to-income ratios. With rising home prices and decreasing affordability, student loans significantly diminish homebuyers' purchasing power.

NAR defines student loan holders as adults currently or recently indebted for their own education or that of their dependents. The report highlights that 60% of millennials who don’t own homes believe student debt is delaying their ability to buy, making them the most affected demographic.

“Today’s millennials are overwhelmed by student loan debt. Our research confirms that this debt is a substantial barrier to homeownership,” said Bryan Greene, NAR’s Vice President of Policy Advocacy, during a policy forum in October 2021.

The Trade-Off Between Education and Homeownership

Americans collectively owe an estimated $1.73 trillion in student loan debt. This financial burden impacts many life decisions, forcing individuals to choose between investing in retirement, buying a home, getting married, starting a family, or saving money, as noted in a NAR press release.

The NAR report reveals that 51% of non-homeowners with student loan debt say their loans delay their home purchase. Among them, 47% cite challenges in saving for a down payment, and 45% doubt their ability to qualify for a mortgage due to their debt.

“Housing affordability is becoming increasingly difficult, putting those with student debt at a severe disadvantage,” stated NAR President Charlie Oppler, emphasizing that younger Americans shouldn't have to choose between education and homeownership.

NAR’s findings are supported by other research, including its annual Profile of Homebuyers and Sellers, which underscores the significant impact of student loans on potential buyers.

In 2020, data indicated that among homebuyers struggling to save for a down payment, student debt was the primary factor causing a two-year delay. Nearly 25% of homebuyers and 37% of first-time buyers reported having student loans, averaging about $30,000.

Additionally, a recent NAR report highlighted that Black homebuyers are more than twice as likely to carry student debt compared to White homebuyers, with a median debt amount $10,000 higher.

Broader Consequences of Student Loans

NAR’s report, The Impact of Student Loan Debt, reveals that only 23% of student loan holders felt they had a solid grasp of college costs before taking on debt. Moreover, 78% didn’t understand their post-graduation earning potential.

Regardless of their initial knowledge, many individuals report that student debt has significant repercussions on their lives. For instance, 36% indicated that student debt delayed their decision to move out of a family member's home, while 26% said it hindered their ability to contribute to retirement savings. Furthermore, 14% stated it postponed their family planning.

The debt also influenced other major purchases, such as vacations (35%), vehicles (31%), and continued education (29%).

“Beyond just homebuying, over half of those with student loan debt have postponed significant life decisions,” noted NAR President Oppler. “Student debt affects not only housing affordability but many aspects of life.”

Envisioning a Debt-Free Future

When asked what they would do if their student loans were paid off, respondents highlighted the following priorities:

• Contributing to long-term savings: 43%
• Paying off other debts: 40%
• Investing: 38%
• Purchasing a home: 24%
• Buying a car: 22%

While many felt that the COVID-19 pandemic and federal stimulus measures did not help them pay off their loans, 38% indicated that it did. The primary reasons for this improvement were the zero interest on federal loans and a reduction in discretionary spending.

To tackle the student loan debt crisis, NAR advocates for a comprehensive strategy, which includes expanding financial education for students, simplifying aid programs, and providing opportunities for debt consolidation and refinancing at lower rates. They also support tax incentives for employers assisting with student debt repayment.

For many carrying student loan debt, achieving the American Dream of homeownership feels nearly unattainable, especially in the current housing market. Nonetheless, millennials account for 37% of homebuyers, the largest generational group, as noted in NAR’s 2021 Homebuyers and Sellers Generational Trends Report. While younger generations face obstacles in becoming homeowners, their impact on the housing market is undeniable. For more insights on working with millennial clients, explore our blog, Millennials & Real Estate - What to Expect as an Agent.