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Student Loans Affect Americans’ Ability to Purchase a Home
October 19, 2021

Student Loans Affect Americans’ Ability to Purchase a Home

by The CE Shop Team

Student Loans Are Among ‘Biggest Hurdles’ to Homeownership

Many Americans — and especially millennials — are burdened with large amounts of student loan debt that affect their daily lives, including their ability to purchase a home, data shows.

Student debt “is one of the biggest hurdles holding potential buyers back from being able to save for a downpayment on a home or to qualify for a mortgage due to the loan holder’s debt-to-income ratio,” according to The Impact of Student Loan Debt, a recent report from the National Association of REALTORS®. “With rising home prices and declining housing affordability, student debt greatly reduces a homebuyer’s buying power.”

NAR defines student loan debt holders as adults who hold, or have held within the last two years, student loan debt for themselves, a spouse/partner, or children/dependents. Among the report’s findings: 60% of millennials who aren’t homeowners say student loan debt is delaying their ability to buy a home, by far the most affected generation surveyed.

“Today’s millennials are drowning in student loan debt. After our research, we can now say with certainty that student loan debt is making it difficult to buy a home,” said Bryan Greene, NAR’s Vice President of Policy Advocacy, at a policy forum in October 2021.

Choosing Between Education and Homeownership

Americans owe an estimated $1.73 trillion in student loan debt, CNBC reported in September.

That debt can have a big impact: People with student debt “often must choose between investing in their retirement, purchasing a home, getting married, starting a family, or general savings,” says a NAR press release

Overall, 51% of non-homeowners with student loan debt say their debt is delaying them from purchasing a home, NAR’s report found. When asked why student loan debt would keep them from purchasing a home, 47% said it was because they couldn’t save for a downpayment, and 45% said they didn’t think they could qualify for a mortgage due to their debt-to-income ratio.

"Housing affordability is worsening, leaving future homebuyers with student debt at a severe disadvantage," NAR President Charlie Oppler said in a statement, adding that "younger Americans shouldn't have to choose between education and homeownership."

NAR’s new report built on other research, including its annual Profile of Homebuyers and Sellers, which also offers insight on the impact of student loans on homebuyers.

“Using 2020 data, among homebuyers who had a hard time saving for a downpayment, student debt was the biggest factor delaying their saving, and delayed their saving by two years,” NAR says. “Nearly one-quarter of all homebuyers, and 37% of first-time buyers, had student debt, with a typical amount of $30,000.”

Another recent NAR report, Snapshot of Race and Homebuying in America, reveals that Black homebuyers are more than twice as likely to have student debt than White homebuyers — and have a median amount of debt that’s $10,000 more than their White counterparts.

Other Impacts of Student Loans

Only 23% of people with student debt said that they had a good understanding of the costs of attending college before taking on student loans for themselves, according to NAR’s report, The Impact of Student Loan Debt

Additionally, 78% of student loan holders said that when they entered college, they didn’t have a strong understanding of what their earning potential could be post-graduation, the report says. 

But whether or not they knew what they were getting themselves into when they took the debt on, many say that student debt has had far-reaching consequences on their lives.

For example, 36% said that student debt delayed their decision to move out of a family member's home, 26% said it prevented them from contributing to a retirement account at all, and 14% said it delayed their decision to start a family, the report says. Some said that it affected decisions they made about employment, from taking on a second job to staying in a job they disliked or found uninteresting.

The debt also affected their ability to make other large purchases, including taking a vacation (35%), purchasing a car (31%), and continuing with education (29%), the report says.
 
"Aside from just purchasing a home, this report finds that more than half of those with student loan debt have delayed some form of major life choice," NAR President Oppler said. "Student loan debt isn't just seeping into housing affordability. It's also plaguing other aspects of people's lives."

Imagining a Future Without Student Loan Debt

When people who have not yet paid off their student debt were asked to imagine what they would do if they no longer had to make those monthly payments, the most popular answers were: 

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

Although most of the people surveyed said that the COVID-19 pandemic and federal government stimulus packages didn’t bring them any closer to paying off their student loans, 38% said that it did, the report says. For those who did come closer to paying off their debt, the two biggest reasons were that zero interest on federal debt allowed them to get ahead of monthly payments, or that they were able to cut spending in other areas of life, such as entertainment and restaurants.

To address the student loan debt crisis in the United States, NAR says it recommends “a multipronged approach.”

“Financial education should be expanded to aid students as they face decisions about financing their education, while aid programs should be simplified,” NAR’s press release says. 

“For those who hold debt, opportunities to consolidate and refinance debt at lower rates will help debt holders lower monthly debt payments, make large purchases, and make wise life choices. Finally, NAR favors expanding tax preferences for employers who assist employees with their student debt as well as tax forgiveness for debt holders who have their debt forgiven or paid off by their employer.”

For some people who have student loan debt, achieving the American Dream of buying a home can feel nearly impossible — and our current housing market doesn’t make it any easier. But that hasn’t stopped Millennials from making up 37% of homebuyers, the largest share by generation, according to NAR’s 2021 Homebuyers and Sellers Generational Trends Report. Younger generations face challenges when it comes to becoming homebuyers, but don’t discount their influence in the housing market. If you'd like to learn more about working with Millennial clients, check out our blog, Millennials & Real Estate - What to Expect as an Agent.

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