Student Loan Debt May Affect The Housing Market

Our last post gave important information on the changing rules about FHA financing and the effect those changes will have on 1st time home buyers. Today I would like to discuss another topic that in my opinion directly affects those first time home buyers and the housing market – Student Loan Debt.

As many know, college tuition has risen exponentially. In a report in August of 2012- the Huffington Post stated that college tuition has risen 1,120% since 1978. How can that number even be possible?

Americans between the age of 18 and 35 have been hit extremely hard with the recent downturn in the economy. Many of these individuals lost their jobs and were out of work for some time and may still be. In addition, there are a number of those fortunate enough to have found something, that  are now making less money than they were 5-8 years ago.  Among them you will even find a large portion with at least a bachelor’s degree. With a job market more competitive than ever, many find themselves returning to college for graduate degrees. It seems as though a Masters Degree is the new Bachelors degree when it comes to job requirements.

How does one pay for tuition that is 1,000% higher when their wages are lower or even non-existent? Out of desperation and a strong hope that when they have earned their degree they will finally be able to compete for well paying jobs, they sign on the line, get a loan check and enroll in classes. After a review of 10 million credit files, FICO found the average debt per student had increased 58% between 2005 and 2012. The number of students with 2 or more loans in that same time period grew from 12 million to 26 million. It has become a viscous cycle and I could probably blog for days about this topic alone, but how does the rise in student loans affect the Housing Market?

According to the National Association of Realtors, first time home buyers make up about 39% of the market, which if you ask me, is a pretty big chunk. In April of this year, there were about 4.97 million home sales across the country which means that 1.9 million were first time home buyers. With an increasing number of Americans in the first time home buyer age range returning to school and taking out student loans, do you think they will be able to go to school and buy a house?  Some have managed to do it and I say kudos to you because it means that your student loan debt is minimal and you have been able to pay on time keeping your credit high enough for a mortgage approval. Many others though are still struggling and it doesn’t look like it is going to get much easier in the near future.

Did you know that a rate decrease is set to expire on June 30th for federal student loans to the tune of 3.4%? President Obama said had this to say about it just this morning. “If Congress doesn’t act by July 1, federal student loan rates are set to double. It’s like a $1,000 tax hike.” – So guess what, not only will your mortgage payments stay higher for longer with the new FHA regulations, but your federal student loan payments will increase unless by some miracle congress extends the rate cut. And, what about private student loans; many are tied to the LIBOR rate which has been fairly low, but will likely increase soon as well.

If the 14 million Americans under age 30 who have student loan debt find a doubling of their interest rates and therefore a hike in their payments and cannot qualify for a mortgage, will it have an impact on the housing market? Will home-ownership be just out of reach and have to put on hold? We would love to hear your thoughts. Sign up to comment!


About the author

As a successful real estate investor and Realtor®, James Wehner’s focus is to assist buyers (investors, first time home-buyers, second home-buyers, relocation…etc) and help them find the best deal that matches their real estate needs.

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