In January, the Federal Reserve bank introduced a new article series titled “Consumer & Community Context,” that will highlight the Federal Reserve’s research and analysis of the financial conditions and experiences of consumers and communities. In the very first issue, the Federal Reserve focuses on an issue that Realtors® have been concerned about for a while—student debt.
In the article “Can Student Loan Debt Explain Low Homeownership Rate for Young Adults,” by Mezza, Ringo, and Sommer, the authors explore the impact that the increase in student loan debt levels may have on homeownership rates among young adults.
“According to our calculations, the increase in student loan debt between 2005 and 2014 reduced the homeownership rate among young adults by two percentage points...This represents over 400,000 young individuals who would have owned a home in 2014 had it not been for the rise in debt.”
They also found that student loan debt can have broader implications than the ability of consumers to buy homes:
Student loan debt early in life leads to a lower credit score later in life;
Increased student loan debt causes borrowers to be more likely to default on their student loan debt; and
While investing in postsecondary education continues to yield, on average, positive and substantial returns, burdensome student loan debt levels may be lessening these benefits