By: Virginia REALTORS® Chief Economist, Lisa Sturtevant, PhD
Americans currently owe a collective $1.5 trillion in student loan debt. More than two-thirds of people who attended college have student loan debt. In Virginia, the average student debt is around $30,000 and average debt per borrower increased by more than 60% in the Commonwealth between 2007 and 2017.
On that last point, a recent survey conducted by the National Association of REALTORS® showed that 83% of non-homeowners with student loan debt say that debt is keeping them from buying a home. According to the NAR survey, young people are pushing homeownership back an average of seven years as a result of debt loads.
Recent research by the Federal Reserve Bank has quantified the relationship between student debt and homeownership. According to this new study, about 20 percent of the decline in homeownership among young adults can be attributed to the increase in student loan debt. Fed researchers found that about 400,000 more young adults in the U.S. would own homes if it wasn’t for the rising student debt burdens.
What is the takeaway from this research on student debt? Is the lesson that young people should not take on student debt to attend college? Not really. We know that compared to people who have only a high school degree, college graduates are more likely to be employed, less likely to live in poverty, and more likely to have higher average incomes. College graduates are also significantly more likely to be homeowners than are high school graduates.
However, it is true that student debt is a major obstacle to homeownership for some people. There are several ways in which REALTORS® can work with potential homebuyers to overcome the hurdles student debt might seem to present to home buying.
- Consider whether it makes sense to take on a high level of student debt. Before even getting to the point of wanting to buy a home, one key is for young adults to be cautious when taking on debt, including student debt. It has been demonstrated that the value of a four-year degree is not typically related to the price tag of the tuition. Therefore, a state school with a lower tuition often can provide the same benefit as a more expensive private school.
- Graduate. A major takeaway from the research on student debt is that the biggest problems are among those who do not finish school. Students who incur significant debt but who don’t finish college programs are at a significant disadvantage because they do not accrue the economic benefits of the degree but still have to pay back the debt.
- Investigate programs to help pay off student loans. There is a long list of programs designed to help individuals pay of their student loans. It is important to make sure that the program is reputable. Ideally, a government-sponsored program may be the most reliable place to start. The Commonwealth of Virginia offers a number of student loan forgiveness programs. The State has also established the Office of the Qualified Education Loan Ombudsman which is designed to help with student loan repayment. Virginia is one of only 11 states to have a student loan ombudsman.
- Reduce living expenses. Paying off student loans and saving for a down payment can seem like a daunting challenge. Young adults with student loan debt can save on living expenses by sharing housing with roommates or living at home for a while. The key is to set aside the savings on rent directly into paying off debt or saving for a down payment, rather than funding other spending.