High levels of student loan debt are not to blame for the drop in the home ownership rate among younger demographics, according to a new report.
Researcher Susan Dynarskly, a senior fellow with the Brookings Institute and a University of Michigan economics professor, discounts prior studies that have suggested a correlation between the two. In her study, she pulled Federal Reserve data and compares those with no college, those with college but no student debt, and those with college and student debt. She found college degrees, and the earnings premiums that come with them, build assets that help people buy homes. The findings appear in the Brookings’ Evidence Speaks series, “The Haves and Have-Nots in Homeownership: It’s Education, Not Student Debt.”
Dynarskly says that, prior to the Great Recession, 35 percent of young people with a college education and no student loan debt owned a home. That compares to only 23 percent of those without a college education. By 2010 however, 26 percent of those with a college education (and no student debt) owned a home compared to 17 percent of those without a college education.
Dynarskly acknowledges that those who went to college and accrued student loan debt tend to have a slower start to home ownership. She says that is likely because the loan payments add to the monthly debt ratio in qualifying for a mortgage.
Those without a college degree were more likely to own a home at an earlier age than those who went to college and have student debt because they had been working since high school and settled down earlier, Dynarskly says. Their college-educated counterparts, on the other hand, delayed entering the labor force due to college. But by age 27, the college-educated tend to catch up, she notes. What’s more, by age 35, those with a college degree lead the homeownership pack by about 14 percentage points.
Student loan debt has been increasing. The typical undergraduate borrower with a BA has a debt of $30,000 and owes $350 a month or $4,200 a year. That said, they tend to earn higher salaries than those without a college degree.
“The college-educated — even those with student debt — are winners in our economy,” Dynarskly says.
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