Student loan debt forcing young people to delay home purchase plans
Due to large student loan payments many young adults are waiting longer to purchase their first home.
One of the hottest stories in the news media today is the soaring amount of student loan debt. Student loans are now the second largest debt of households following mortgages. It is known that education beyond high school is vitally important but the cost of higher education is affecting young adults in significant ways.
The New York Federal Reserve did a report on the average age of someone borrowing for a home purchase. They began by gathering information of what the average student loan debt was for a 25-year-old in 2003 verses 2012. What they found was that in 2003, 25 percent of 25-year-olds had student loans, where as in 2012, it had increased to 43 percent. The bigger issue was that the amount owed grew 91percent between 2003 and 2012. Consequently, student loan nonpayment has also increased during this period of time.
National Association of Realtors reports that the median age of a first home purchase is 30 years of age. Using the same time period of between 2003 and 2012, they found that from 2003 through 2008 those with student loan debts were purchasing their first home at a higher rate than those without student loans. When the recession hit, this changed. By 2012, the home ownership rate has flipped flopped and the home ownership rate for those with student loan debt is less than those who do not have student loan debt.
Michigan State University Extension is a Housing and Urban Development- and MSHDA (Michigan State Housing Development Agency)-certified agency, and it has provided home ownership education for more than 23 years.
One of the biggest challenges that potential first-time homeowners face is qualifying for a mortgage due to debt-to-income ratios being too high. Too often this is caused by their student loan debts and in many cases they are in a long-term repayment plan. Until they can increase their earnings to either improve their debt-to-income ratio or accelerate paying off their student loans, owning a home will be difficult or in some situations out of reach.