Student Loan Debt & Homeownership

Last Updated: October 12, 2021 by Melanie Hanson

Report Highlights. Since 2005, for every $1,000 increase in student loan debt, homeownership decreases by 1.8% for recent college graduates.

  • Between 2005 and 2014, homeownership of individuals aged 24 to 32 dropped by 9% – rising student loan debt might be a contributing factor to this.
  • 47% of student debt holders stated that their loans prevented them from making a down payment on a home.
  • 45% of student debt holders believed that their poor debt-to-income ratio disqualified them from getting a mortgage.
  • 72% believed their debt would delay them from purchasing a home for the foreseeable future (several months to more than 8 years.)

Related Reports include How Refinancing Affects Your Credit Score | How to Pay Off Student Loan Debt Fast| Economic Effects of Student Loan Debt | Student Loan Debt Statistics | Should You Refinance Your Student Loans?

Timeline of Homeownership Drop by Average Student Debt
Year Average Student Loan Debt Home Ownership Drop Among Recent College Graduates
2016 $30,548 1.8%
2017 $31,924 4.3%
2018 $33,635 7.4%
2019 $35,402 11%
2020 $36,635 13%

General Statistics

Student loans can increase a potential buyer’s debt to income ratio (DTI). DTI affects how willing lenders and banks are to loan buyers money. Millennials today have less income to put towards the payment of a home despite the monetary enhancement of a college degree.

  • The 1.8% drop for every $1,000 increase in student loans no longer applies after adults reach their mid 30’s.
  • The 1.8% statistic typically applies to most graduates within the first 5 years of graduation.
  • 72% of student debt holders believed their debt would delay them from purchasing a home for the foreseeable future (several months to more than 8 years.)
  • 19% of student debt holders specifically believed their debt would delay them from purchasing a home for more than 8 years.
  • Marriage significantly increases the likelihood of homeownership – by 10.4%.
  • Children increase the likelihood of homeownership, each child makes the student loan holder more likely to own a home by .17%.
  • If the student debt holder is unemployed, each additional month of unemployment decreases the likelihood of homeownership by .68%.
  • The graph below assumes the average monthly student loan payment is $393.
  • The graph below assumes the average monthly payment on a 30 year fixed mortgage is $1,275.

Comparison of Monthly Payments on EducationData

Maryland Mortgage Program

The Maryland Mortgage Program is a home ownership assistance program for recent college graduates and first time buyers. Specifically, the Maryland Smartbuy 3.0 sub-program assists first time homeowners who still have student debt. The potential buyers must also take a homebuyer education class in order to qualify for the program.

  • Maryland Smartbuy 3.0 offers 15% off the purchase price of a home to help pay off a mortgagor’s existing student debt.
  • The maximum amount Maryland Smartbuy 3.0 offers is $30,000.
  • The mortgagor must have their student debt fully paid off by the assistance program at the time of the home purchase.

Ohio Grants For Grads Program

The Grants For Grads program is an assistance program intended for home purchasers who graduated college within the last 48 months. Grants For Grads is regulated by the Ohio Housing Finance Agency (OHFA).

  • This program offers a 2.5% or 5% down payment assistance towards buying a new home.
  • The down payment assistance is forgiven after 5 years domicile in the state of Ohio.
  • The program requires the mortgagers to undertake a homebuyer education course.

Rhode Island’s Ocean State Grad Grant Program

The Ocean State Grad Grant is specific to recent graduates who received their diploma 36 months ago. The program requires the applicant to be a first-time home buyer and they must obtain their mortgage through the Rhode Island Housing or a participating program lender.

  • Offers up to $7,000 assistance on a home purchaser’s down payment.
  • Household income for 2 people must not exceed $89,280.
  • Household income for 3 or more people must not exceed $104,160.
  • The borrower must attend a homebuyer education course.

Student Loans & Home Ownership by Race

Student debt affects the likelihood of home ownership differently among the races. Race plays a large factor in whether an individual will transition from renting to home ownership.

  • 21% of White households have student loan debt.
  • 43% of Black households have student loan debt.
  • White college graduates are very likely to receive financial support from their family for the purchase of a home.
  • Whereas, Black college graduates are significantly more likely to be the financial support for their families, especially their parents.
  • Black college graduates are more likely to have a higher student loan debt partially because their income goes towards financially supporting older generations.
Table of Racial Groups Stating Student Loans were Delaying Homeownership
Race Percent of Population
White 52%
Hispanic 53%
Black 43%

Student Loans & Home Ownership by Age Group

Student loan debt delays certain age groups from purchasing a home, but does not permanently prevent them from eventually becoming homeowners. Individuals with a bachelor’s degree but no student loan debt had the highest rates of homeownership in each age group.

  • Roughly, 40% of Generation Z say their student loan debt is delaying them from owning a home.
  • 60% of Millennials say their student loan debt postponed them from buying a home.
  • 53% of Generation X stated their student loan debt is delaying them from owning a home.
  • More than 30% of Baby Boomers said their student debt postponed them from buying a home.
  • The student debt of Baby Boomers may be the result of student loans this age group took on behalf of their kids from a younger generation.
  • Partial college versus earning a full Bachelor’s degree also affects the rate of home ownership among age groups.
  • 25 to 29 year old’s in particular are more likely to own a home even with student debt so long as they’ve graduated college.
  • For the other age groups, they were more likely to own a home so long as they didn’t owe student debt, regardless of completion.
  • The table below accounts for college graduates only.

Home Ownership by Student Debt Age on EducationData

Student Loans & Home Ownership by Income

Interestingly, graduates with higher levels of income and student loan debt are less likely to own a home than those with smaller incomes and lesser amounts of student debt. These graduates take on more student debt because they come from more expensive schools, and because they go to graduate colleges expecting to make a higher income with an advanced degree.

  • 60% of people who make more than $100k annually stated their student loan debt was delaying them from buying a home.
  • 56% of people who make between $50k and $100k annually stated their student loan debt postponed them from buying a home.
  • 48% of people who earn less than $50k annually stated their student loan debt was delaying them from owning a home.

Sources

  1. The University of Chicago Press Journals – Journal of Labor Economics: Student Loans and Homeownership
  2. National Association of REALTORS (NAR): The Impact of Student Loan Debt September 2021
  3. Department of Housing and Community Development Maryland Mortgage Program: Maryland Smartbuy 3.0
  4. Ohio Housing Finance Agency – MyOhioHome.org: Grants For Grads
  5. Millennial Rhode Island: Ocean State Grad Grant Program
  6. Federal Reserve Board – Finance and Economics Discussion Series: On the Effect of Student Loans on Access to Homeownership
  7. Brookings Institution Report: Reconsidering the Conventional Wisdom on Student Loan Debt and Home Ownership
  8. The University of Tennessee Knoxville – TRACE Tennessee Research and Creative Exchange: The Effect of Student Loan Debt on Homeownership
  9. The University of Kansas: Study Finds Renters of Color Less Likely to Become Homeowners
  10. Federal Reserve Bank of Boston – Current Policy Perspectives: Student Loan Debt and Economic Outcomes
  11. Consumer & Community Context Series: Can Student Loan Debt Explain Low Homeownership Rates for Young Adults?