“Today’s program looks at college debt and homeowning. Mike, it’s well known that college debt has skyrocketed in recent years. It’s also been observed that many young adults don’t buy homes like their predecessors did. Is there a link between the two?”
“Well according to a new study just released from the Federal Reserve is a definitive yes. Now some background, college debt indeed has gone up. It’s tripled in the last dozen years. At the same time we see homeownership among young people, roughly aged 24 to 32, has fallen nine percentage points. So the question is, do the two go together?”
“Based on the Federal Reserve’s analysis they’d say, ‘Yes, they do.’ They estimate that the higher college debt is responsible for about 25 percent of that decline in homeownership rate among young people. Now why?”
“Well, number one, students often fall behind in their college debt payment which means that’s going to hurt their credit rating. It’s going to hurt their ability to get a home loan. Also those with student debt often can’t save enough. They can’t save enough for a home down-payment.”
“So researchers do see an impact of college debt on home buying, and they think that that may be the big reason why we’ve not seen housing recover from the last recession like it did from previous recessions.”
Mike Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in
the Department of Agricultural and Resource Economics at North Carolina State University who
teaches and writes on personal finance, economic outlook and public policy.