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.


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.

CyberDisobedience on Substack | @aravosis | Facebook | Instagram | 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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