The benefits of owning a home in the U.S. cannot be overstated. Purchasing a home is considered a prerequisite for financial security. However, homeownership has declined significantly in the last two decades, precipitated by the burden of student loan debt.
The rising cost of education has been a hot topic in recent years. As more and more students join higher education institutions, they have to cover rising educational expenses by juggling school and work. Professional academic writing websites like www.customwritings.com make life easier for students by assisting them to complete assignments efficiently. Still, student debt adds to financial stress after graduation.
First-time home buyers have an extra hurdle of student debt. How does this affect housing affordability? Let’s put things into perspective by examining the relationship between student debt and housing affordability.
The link between student debt and housing affordability
The budget of a current homebuyer is burdened by rising mortgage rates and housing prices. For many buyers, they have an added cost of servicing student debt. Research finds a causal relationship between student debt and home ownership. Student debt can make it difficult for young adults to save enough money for a down payment or to qualify for a loan. While the burden of student loans could affect savings and access to mortgages, many other factors contribute to the housing crisis. Yet, research identifies student loan debt as one of the main factors that impact homeownership.
As student debt mounts, homeownership rates have decreased significantly, especially among young adults. Student debt holders trying to purchase a home face many challenges, including:
- Inability to accumulate financial wealth that can be used as a down payment for a house.
- High student debt payments increase a person’s debt-to-income ratio, making it difficult to qualify for a mortgage.
- Student loan debt affects the credit score of home buyers, inhibiting their access to loans.
- Student debt can prevent risk-averse people from home ownership as they wish to clear the existing debt before purchasing a home.
A pause in student debt collection during the pandemic gave many buyers wiggle room to afford a house, but the prices still soared for house hunters and renters. This caused many student debt holders to struggle with mortgage payments. Instead of using the debt pause to pay rent and mortgage, many people used it to pay for basic necessities.
Student debt prevents holders from building equity that can give them access to the pricey and competitive housing market. The housing market favors buyers with lots of savings and previous home equity. It’s hard for first-time buyers servicing student debt to compete with existing homeowners.
The current challenges in the higher education sector mean that student debt contributes to increased demand for rental properties and homelessness. That’s why more than half of student loan holders with defaulted home loans state that servicing student loans stops them from affording a home.
Estimating the exact effect of student loans on housing affordability is complicated due to other factors that influence the two variables. Still, studies that have attempted to isolate the two variables have found a substantive negative effect of student debt on housing affordability.
Future outlook on the relationship between student debt and housing affordability
If you are about to join college, it’s essential to factor in how your student debt will affect your future financing options for a home. The majority of young student debt holders are expected to keep postponing homeownership as the high cost of homes and student debt make it harder to save up for a home. Other milestones that may be delayed due to high student debt and high cost of houses include moving out of home, starting a family, and getting married. Despite carrying huge student loan debt, most graduates still desire home ownership.
As we wait for sustainable economic and educational reforms to reduce the cost of higher education, its impact on housing policy needs immediate review. Current data indicates that student loan debt will continue to undermine housing affordability. A strong housing policy would help citizens burdened with student debt by presenting financing options that allow them to meet housing costs.
Student debt is one of the biggest barriers to homeownership
The weight of student debt continues to cause a crisis in housing affordability. If left unaddressed, there will be more homelessness and fewer homeowners in the U.S. Thus, concerned levels of government and the housing industry must work together to manage the student debt crisis and bring affordability to homeownership.
