Tuesday, September 2, 2014

If you have student loans, you're less likely to own a house

A house for sale David McNew/Getty Images

A few arguments dominate when people argue that growing student debt is bad news. One is that unmanageable student debt can be miserable for the individual borrowers. The other is that too much student debt is bad for everybody because it holds the economy back.

The second is getting more weight in policy debates. It's part of the rationale behind Sen. Elizabeth Warren's proposal to let some borrowers refinance their student loans. A central feature of the concern is about housing: a high debt-to-income ratio means student borrowers are less likely to get a mortgage, and budgeting for loan payments constrains their ability to save for a down payment.

And sure enough, people with student debt are now less likely to own a home by 30 than people without debt, according to the Federal Reserve Bank of New York:

Screen_shot_2014-05-09_at_1.18.41_pm

The New York Fed argues that student loan borrowers are also more likely to be highly educated and have higher incomes that make home ownership possible. That's why borrowers had higher rates of home ownership in the past.

But there's another possible explanation, which is that 2003 to 2010 was during and immediately after the housing bubble — when lending criteria notoriously loosened. If you take a longer view, as Beth Akers at the Brookings Institution did with a different data set, the period when student borrowers were more likely to own homes looks like more of an outlier. (Akers' data stops before 2011, the year the New York Fed analysts found that student debt-free households had higher home ownership rates.)

Screen_shot_2014-05-09_at_1.22.09_pm

Brookings Institution

Even if the US is now just returning, post-bubble, to longstanding trends of lower home ownership among student debtors, there's a big and obvious difference that makes the trend more worrisome. Many more people now have student debt.

Going into debt for a bachelor's degree was uncommon until the federal student loan program expanded in 1992: just 25 percent of public college graduates and 41 percent of private college graduates had debt in the class of 1993. So student debtors were less likely to buy houses, but they were also a much smaller share of the population.

Now 70 percent of bachelor's degree recipients graduate with debt. That could be bad news for the nation's real estate agents, and also for the economy.

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