A study by Federal Reserve economists released today torpedoes the contention that college grads are being prevented from buying houses by student loan debt. Rather, they are buying house at the same rate as grads with no student loan debt.
The findings have wide-ranging implications for the future of homeownership. Surveys conducted by the national Association of Realtors and others have found widespread concern about the impact of student loan debt, which topped $1 trillion last year, on homeownership. The implementation of the QM rule governing mortgage underwriting standards sets a 43 percent debt to income ration, with no exceptions, making it difficult for many paying off student loans to qualify, which could crush recovery of the housing market in the near future. Concern even sparked legislation in Congress for a debt modification program.
The latest Fed study may lower the angst level and put the debate on a calmer, more rational level. Using a nationally representative sample of young individuals with credit records who were between the ages of 29 and 31 in years 2004-2010, the homeownership rate declined relatively more for those with student loan debt than for those without student loan debt. Thus, while homeownership rates were generally higher for those with student loan debt during the entire period, the difference between the rates became much smaller by the end of 2010, suggesting that student debt may have made ownership more difficult.
In contrast, separating the group of individuals with no student debt into two subgroups: (i) those with no college education (the blue line) and (ii) those with some college education (the red line). The panel illustrates that the homeownership rates between the two groups differ substantially, with an average homeownership rate gap of about 13 percentage points over the full period. Moreover, the evolution of homeownership rate across time varies between the two groups, suggesting that combining individuals with no student loan debt and with or without college education into a single group could indeed confound statistical findings related to the relationship between homeownership and student loan debt.
Panel C compares the changes in homeownership between those with college education with and without student debt (the green and the red lines, respectively). The panel suggests that the observed declines in homeownership are not dissimilar between those with and without debt and college education