WASHINGTON – With student loan debt numbers at a historic level, the Federal Reserve reports that home ownership rates are dropping as a result.
The nationwide home ownership rate has dropped noticeably since 2005, particularly among young Americans. In the wake of the financial crisis, overall home ownership in the United States fell from 69 percent in 2005 to 65 percent in 2014, according to the Fed.
Among household heads aged 24 to 32, the rate fell more steeply, from 45 percent in 2005 to 36 percent in 2014.
While home ownership numbers have fallen, student debt has spiked. Outstanding student loans have ballooned to roughly $1.5 trillion, while the average student loan debt per capita among 24-to-32-year-olds has doubled since 2005, rising from roughly $5,000 to $10,000 in 2014, according to the Fed’s Jan. 16 report.
With young people spending more money on outstanding student loan debt, the burden of buying a home has become even more difficult.
“We estimate that roughly 20 percent of the decline in home ownership among young adults can be attributed to their increased student loan debts since 2005,” said report authors Alvaro Mezza, Daniel Ringo, and Kamila Sommer of the Federal Reserve.
In other words, over 400,000 people would have – or at least could have – purchased a home if not for the increase in student loan debt. The study showed that a $1,000 increase in student loan debt for a college-age person yields a 1 to 2 percent drop in their likelihood of owning a home from age 24 to 32.
Maryland Sen. Chris Van Hollen is one of several Democratic lawmakers to speak out against continually rising student loan debt, which now ranks as the second largest debt category among Americans (behind mortgage debt), according to Forbes.
“Student loans impair their financial mobility — often preventing them from buying a home or putting away savings,” Van Hollen, a member of the Senate Banking Committee, told the Capital News Service in a statement.
In addition to being a vacuum for some graduates’ savings accounts, student loan debt can put a hamper on credit scores, an essential tool in buying a home.
“Increased student loan debt causes borrowers to be more likely to default on their student loan debt, which has a major adverse effect on their credit scores, thereby impacting their ability to qualify for a mortgage,” the Fed report said.
Aside from home ownership, a weak credit score stemming from student loan debt affects one’s access to auto loans and credit cards as well.
“We must address this growing problem,” Van Hollen said. “That’s why I support efforts to allow students to refinance their loans to lower rates, improve implementation of the Public Service Loan Forgiveness program, and increase the Pell grant to cover more college costs.”
Refinancing loans and the Public Service Loan Forgiveness program are two popular avenues to lower student loan debt after graduation, while the Pell Grants are given to needy undergraduate students and almost never requires a repayment.
All three options are currently in place, but with the debt total continuing to rise, Van Hollen and other Democrats are looking for changes.
Of course, the benefits of a college education are essential to the relationship between student loan debt and the potential for higher salaries after graduation.
Those who receive a form of higher education still experience higher earnings and lower rates of unemployment, on average, according to multiple reports.
However, with the increasing burden of student loan debt, the benefits of secondary education might be losing their impact, the Fed warned.