Student loans have been a problem for first-time buyers for generations, but they didn’t stop first-timers from buying 40 percent of the homes sold ten years ago. So what’s the whining all about?
One thing that’s different is the size and scope of the problem. Overall student loan debt recently breached the $1 trillion mark. There are more individuals with student loan debt, and more of it, than ever before. Compared to past generations, income growth for young people in the U.S. today is stagnant. Yet going to college still increases one’s earning potential.
“For those who had to finance college with loans, the burden of repayment relative to income remains the same today as in the 1990s. Which begs the question, if young people in the 1990s found a way to buy a home at the same time as having student loans, then why wouldn’t young people today, with the same relative burden, be able to do the same?” writes CoreLogic’s Mark Fleming in the firm’s blog
Research by Jeffrey P. Thompson, economist at the Board of Governors of the Federal Reserve System, shows that when carefully empirically modeling the level of educational attainment among those who have student loan debt, there is little evidence of a strong reduction in the likelihood of homeownership for those who complete their education. The research does find the likelihood of homeownership is reduced for those who have student loan debt, but do not complete their education. Accumulating the debt, but not earning the degree, results in the burden without any benefit. Research still shows that, on average, getting a college degree results in higher earnings.
The message is that the real losers are those who don’t graduate. “There are wide variations in the outcomes for those who accumulate student loan debt. In particular, the detrimental impact on financial stability for those who don’t complete a degree.”
Those who do graduate, even if burdened with debt, should be able to buy a home in time if the economy would cooperate and provide them better job opportunities.
Unfortunately, the number of those who leave school with new debt but no new degree is scary. According to a 2011 study by the Harvard Graduate School of Education, only 56 percent of students who enter four-year programs graduate within six years. That number plunges to 22 percent for for-profit colleges. Fewer than four in 10 students graduate in four years, while just about six in 10 graduate in six years, according to The Education Trust. About 60 percent, or 12 million, students in higher education today, rely on student loans. Do the math and it’s not very encouraging.