Study: Student loans are killing the housing market

A new study suggests that the burden of large student loans is forcing college graduates to either buy smaller homes, or not buy at all.

The analysis is rather back-of-the-envelope — meaning, it’s a bit of an educated guesstimate — but it’s something that crossed my mind a few years ago as well.

Basically, we pay a lot for a college or graduate school education in this country. And the debt you amass can be enormous.

At a certain point, that debt comes with an opportunity cost — several in fact. It can force you to take a higher-paying less socially-aware job (good luck working for the government or a non-profit with high student loans — let me tell you, it ain’t fun). And, it can make you awfully gun-shy about spending any money until (and even after) the loans are paid off. And that includes putting off buying your first home.

John Burns Consulting concludes that “8% fewer homes will transact than normal in 2014, purely due to student debt,” and that “414,000 transactions will be lost in 2014 due to student debt, at a typical price of $200,000, that is $83 billion per year in lost volume.”

I was $60,000 in debt after undergrad, grad school, and law school. Thank God my parents paid for most of undergrad, and for my grad and law room and board. I took loans for the tuition. And I spent 15 years paying those loans back, and at the beginning they cost me the same amount monthly as my rent — $600. I was in essence renting two apartments, financially speaking, which didn’t leave a lot of room for buying a place, or for socking money away for my retirement.

It did not, however, stop me from pursuing jobs in the public interest, but that lifestyle choice definitely hurt my retirement prospects (as I’m now learning). I’d have done much better financially had I taken that job as a lawyer at the Fed in 1989, or as a consultant with Booz-Allen in 1994 — both of which I was offered (at nearly the salary I’m making today), but turned down because I wanted to do something with more purpose.

It’s hard to turn down good money when you owe a ton. And if I knew then what I know now about how much you need to retire, it would have been an even harder choice. (Fortunately for my soul, and the overall gay rights battle, I didn’t know :)

But what I did decide, early on, was that I couldn’t afford to buy a place — and I didn’t until I was 45. It was nearly impossible to save enough money to make a real down payment, and I wasn’t comfortable putting down no down payment, or paying more in mortgage than I was currently paying in rent, as I was already quite gun-shy about debt because of my significant loans.

ImpactofStudentLoans

More from John Burns’ study:

  • Student debt has ballooned from $241 billion to $1.1 trillion in just 11 years.
  • 29 million of the 86 million people aged 20–39 have some student debt.
  • Those 29 million individuals translate to 16.8 million households.
  • Of the 16.8 million households, 5.9 million (or 35%) pay more than $250 per month in student loans, which inhibits at least $44,000 per year in mortgage capability for each of them.
  • About 8% of the 20–39 age cohort usually buys a home each year, which would be 1.35 million transactions per year.
  • Using previous academic literature as a benchmark for our own complicated calculation, we then estimated that today’s purchase rate is reduced from the normal 8% depending on the level of student debt—ranging from 6.9% for those paying less than $100 per month in student loans to less than 1% for those paying over $1,300 per month. Other factors contribute to even less entry-level buying today.

Now, one thing I always suspected, and the study suggests it as well, is that I did reap some benefits from having a joint masters in foreign service and a law degree from Georgetown. It definitely opened doors to several of my jobs, and those jobs helped to put me on a path towards doing what I’ve done the past 25 years since I got my degrees.

And from USA Today’s write up of the study we learn that, in fact, having higher degrees tends to increase your income:

The median of annual earnings for young adults in 2012 was $46,900 for those with a bachelor’s degree, $30,000 for those with just a high school degree or credential and $22,900 for those who did not complete high school. Those going on to grad school for advanced degrees — and that’s where student loans can really start to pile up — are at $59,600 a year.

I remain convinced that it was a good idea to go to college. But when I speak to kids about going to college, I warn them about the cost, and usually tell them that it isn’t worth going to a private university unless you’ve got a full scholarship. I thank God I turned down the University of Chicago for my undergrad studies. I still regret not going, but I can’t imagine having carried that debt as well. There’s got to be a better way.

And in fact, Germany just eliminated college tuition entirely.


Follow me on Twitter: @aravosis | @americablog | @americabloggay | Facebook | Instagram | Google+ | LinkedIn. John Aravosis is the Executive Editor of AMERICAblog, which he founded in 2004. He has a joint law degree (JD) and masters in Foreign Service from Georgetown; and has worked in the US Senate, World Bank, Children's Defense Fund, the United Nations Development Programme, and as a stringer for the Economist. He is a frequent TV pundit, having appeared on the O'Reilly Factor, Hardball, World News Tonight, Nightline, AM Joy & Reliable Sources, among others. John lives in Washington, DC. .

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20 Responses to “Study: Student loans are killing the housing market”

  1. clubchampion says:

    Hey, I heard that the burden of large mortgages is preventing older folks from going to college. If only houses were cheaper.

    Also, I heard that large mortgages prevent people from running up credit card debt on vacations. If only houses were cheaper, airlines and resort hotels would be doing much better.

    At least when you take out a mortgage it gives you marketable skills that raise your salary. Borrowing money to pay for an education? That’s just a sign of excessive American materialism. It’s a much better idea to spend a third of your income on a house than it is to get an education; that’s why mortgage interest is deductible and student loan interest isn’t.

  2. StealthVoter says:

    The number one recipient of student loan money is the University of Phoenix. Student loan money has made its founders unbelievably wealthy. And overall, I believe the easy availability of student loan money has driven UP the cost of education. Its further compounded by the insane notion that everyone should go to college. Its how we end up with people with $150,000-$200,000 of student loan debt and a degree in sociology or environmental justice. Those folks end up working at Starbucks or as Data Entry Operators ($15/hr). There’s nothing wrong with those jobs, but you obviously don’t need college education to perform them. I contend that a lot of those people would have ended up in those jobs anyway but easy loan money caused them to take a detour through liberal arts.

    And before anyone jumps on me about the evil Starbucks corporation not paying living wages, keep in mind that throughout history, certain professions are always valued more, regardless of he political system. Whether it was feudal Europe in 1100 AD, Industrial England in 1820, the Soviet Union in 1950 or Silicon Valley in 2014, engineers and scientists are always favored more than the less skilled.

  3. ComradeRutherford says:

    “it’s a massive drag on the economy.”

    And that is by intention. The LAST thing CONservtives want is a healthy economy with well-paid Americans being able to afford to buy homes.

  4. ComradeRutherford says:

    And your life is exactly what the Conservatives have intended to bring about a along. The LAST thing Conservatives want is for normal people – like you – to have a decent life.

  5. ComradeRutherford says:

    Actually no. There are retirees today that are STILL paying their student loans.

  6. ComradeRutherford says:

    This was all part of the plan ever since the John Birchers got Saint Reagan into the White House. No one shold be surprised, especially since the Democratic Leadership all became Moderate Republicans, such as Obama and the Clintons, and refuse to fight against this forced impoverishment of ALL Americans

  7. ComradeRutherford says:

    Look it’s not surprising. The insanely wealthy want to own every penny of money that exists. The MBAs that have take over Higher Education figured out that if they can take every penny away from college students for the rest of their lives, then they’ll get all the money. The rest of the insanely wealthy are just pissed off that the money no longer gets downstream to them, like in housing.

    The Conservatives simply HATE it when anyone else other than themselves have more than two pennies in their pocket.

  8. KathFriendafi says:

    hard to believe I got a nearly new red Infiniti FX SUV just by part time work from a home pc. learn the facts here now HOME EARNINGS REPORT

  9. Houndentenor says:

    Starting in 2009 the investment banks made heavy pitches to get their greedy paws on the state pension funds. (I should know. I booked some of the travel for one of them.) If you are a state employee (like a teacher) and have your retirement in one of these funds you should be very concerned.

  10. BeccaM says:

    Personally, I blame the corporatization of our colleges and universities. First it was the private ones, then the public.

    And yeah… with trillions of dollars out there in debt, it’ll either be financial collapse or violent revolt once people get tired of being indentured servants to the plutocrat class.

  11. Naja pallida says:

    Let’s not kid ourselves, it isn’t just the housing market. It’s the market for pretty much everything. People deeply in debt are not buying homes, cars, they’re delaying starting families, often continuing to live with their parents. Thus depressing the market for pretty much for absolutely everything that young people invest in when they’re just starting their lives after schooling. Then the jobs they are getting are paying less, so they’re not paying off the debt they already have, and are often incurring even more debt in the form of credit cards. As a society we are irretrievably in debt, the vast majority of it will never ever be paid off, and our entire financial system is a shell game built on a house of cards. It’s only a matter of time before it all collapses around us. To top it off, government’s capability to be any kind of serious safety net has been so horribly eroded that when it does come to a head, what does anyone think the solution is going to be? The rich will be sheltered in their gated communities, while the rest of us battle it out in the streets for bread.

  12. Houndentenor says:

    I overstated that. But they often don’t have any real idea of what it’s going to be like once they graduate. You are right, many are aware and they don’t have any other options. It does mean that in schools where tuition is charged by the hour (some schools charge a flat rate for say 12-17 hours) students are not taking any classes that they don’t need in order to graduate because they don’t want to pay that $1000 (or more) plus interest for the next 20-30 years. And the schools moan about that but there are things they could do to fix it. And as someone else noted, they pay University Presidents CEO type salaries which is not how it used to be. they all seem to one a big name for that job. Those positions used to be taken by respected faculty members and they paid well but certainly not seven figures! Of course the board is made up of people who think making only a couple million per year is chump change and meanwhile don’t have a problem paying faculty (more and more of them are adjuncts with no benefits) as little as possible. It’s the same thing that’s happening with everything. I keep thinking the day or reckoning is coming but I think that’s not going to hit until after the next financial crisis (which is going to make the 2009 one look like a bump in the road).

  13. BeccaM says:

    Well… I can’t actually agree with students “borrowing the money now and not really thinking about what it will take to pay the money back.”

    I know a number of students, and my wife has frequent contact with UNM, where she was once an adjunct professor for physics. For the students I know, they don’t like the fact the tuition fees are saddling them with indentured servitude-level debts, but the response is always the same, “What choice do I have? There are no decent budget schools anymore. It’s either this or no college at all.”

  14. Jimmy says:

    If I could go back in time and tell my younger self to suck it up and not take out loans I would. Taking loans was the worse mistake I ever made. My income has never been able to keep up with the payments. Because I can only make interest payments it’s pushed out the total years I have to pay to the point that I might get to retire right when the last payment is made.

  15. Houndentenor says:

    Go to any college campus and you’re likely to see massive building projects. If you want to know where all that money is going, look at all the new buildings. And because all the other colleges are in massive building projects, the rest feel they have to do it to compete. Price doesn’t seem to be an issue because students are borrowing the money now and not really thinking about what it will take to pay that money back later. At the very least we should slash the interest on federal student loans to the prime rate (as suggested by Elizabeth Warren). At some point politicians will have to appeal to voters suffering under a mountain of debt. Of course that assumes at some point in the future we stop allowing Congress and the Legislatures to take legal bribes from the big banks.

  16. Mike F says:

    Former industrial worker here*, and here is the lay of the land regarding the money my wife and I (ok, mostly I) have to pay out every month, not counting mortgage and utilities**:

    160.50USD/month for 36 months on a CT scan, which was prescribed as part of the follow-up to the cancer surgery in ’10. Total for the scan at the hospital where my urologist practices: 6000USD+. When I told my doctor (who is actually a nice guy, if perhaps slightly eccentric), both he and the attending nurse about fell off their feet. Yes, ladies and germs, our system is so fucked up, the professionals who prescribe these tests don’t even know how much they cost. Ain’t that a pip?

    An additional 40USD/month increase on my health ins. prem., starting Jan 1 of this year. It is now at ca. 240USD/month. Cheapish, yes, but well, see the above costs for a CT scan, and you can guess the rest.

    100USD/month from the student loan, which financed the technical college education I received in May, 2013. I still haven’t found a job in my field. I work at a warehouse for a major national dept. store, throwing boxes into a truck, for 10.50USD/hr. I’m 50. As it is, I put down some of our savings on the loan to bring it down to a more manageable monthly payment.

    The cars my wife and I drive were made in ’97, and ’98, respectively, and they are definitely showing their age. The total additional costs incurred over the two month or so period at the end of last year, when the CT scan bill became due, the student loan payments, and the increase in the prem.: 300USD/month.

    Just in case you were wondering, that’s a car payment.

    *Former, because I don’t expect, in spite of the industrial education certificate I earned, to ever have another decent-paying job in industry connected to the certificate I earned. I actually got the present job because a board member on the arts org. my wife works for is an employee. I’ve discovered that it’s almost impossible to get a job without knowing someone at the company for which one has applied.

    **These costs have remained relatively stable, except the mortgage, which when it gets sold from a fairly minor servicing institution, to a major one, saaaay, PNC or Bank of America, tends to increase by roughly 30 or more USD/month, because they found a “shortage” in the escrow acct. Uh, yeah, right. Funny thing, it always goes back down to the original payment amount after a year or so. Funny.

  17. BeccaM says:

    My alma mater is Carnegie Mellon University. When I first enrolled in 1981, the tuition was (for me and my parents) a rather pricey $4700, plus room and board since I was an on-campus resident. By time I graduated in 1985, tuition alone had skyrocketed to $10k/year — and not only was I working multiple part-time jobs during my studies, I’d had to get an off-campus apartment with friends because I just couldn’t afford their dorm rates anymore. (My junior and senior years were also the “Years of Beefaroni and Ramen.”) I was lucky: My grandmother stepped in to help with that last year, and I managed to graduate with only $15k in student loan debt, paid off in 5 years.

    I just checked. Tuition for undergrads in 2014 at CMU is now $48k. Living on campus, it’s estimated at $64k for room, dining, books, and unavoidable fees. Looking at what they’re charging now, more than 1000% over what I was charged in my first year, I realize that if I had a college age kid, going to my alma mater for them would be out of the question.

    Of course it’s a massive drag on the economy. It’s long since past time realized these parasites — both the out-of-control colleges with their constantly skyrocketing tuition fees, and the banks that are enabling them — are in fact a drag on the economy. It’s like trying to run a marathon while swarms of mosquitoes, ticks and leeches are gorging themselves on your blood.

    An aspect of a healthy, viable nation is when we invest in the future. Instead, the economy and the entire business culture serves the parasites. Where even the aspiration to have a better life than one’s parents, to become educated, is essentially taxed by the plutocrats to the point of…well, being almost pointless.

  18. Houndentenor says:

    Well perhaps builders will start building affordable homes rather than one development of mcmansions after the other. Near where my parents live (where there are not exactly a lot of six figure jobs) I see dozens of new developments of homes “starting in the 300s”. Who there makes enough to afford those homes? It’s gotten to be ridiculous. Look at what a middle class home was in the 50s and 60s.

    All that said, the student loan debt is something we are going to have to address and soon. Preferably before the next melt-down (and it’s coming…the too big to fail banks are bigger and failier than ever and the new financial “instruments” are even more risky and unstable than ever), but if not it’s definitely going to come up after. Maybe that’s the shock that Americans are going to need to break up the big banks and put the fraudsters and banksters behind bars where they belong.

  19. DRoseDARs says:

    I’m 33, I’ve ~14k debt, I *was* studying architecture when the Miracle of the Bush Economy(TM) blossomed in ’07. I could read the tea leaves, knew it’d be ugly for a long time, and stopped my studies while the stopping was good. I make a little less than ~20k/yr and have no savings whatsoever. I have no illusions I’m ever going to own a home or retire before I die.

    There’s no punchline there, other than I and my fellow Millennials are fucked.

  20. Jim Olson says:

    Yup. We’re both clergy, with a mountain of student loan debt each. Very few of us make more than $75,000 a year (I make considerably less than that.)

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