How old were you when you bought your first house? Many people in a generation past bought their first homes in their mid-to-late twenties. A few generations ago home ownership often began in the early twenties, if not sooner.
Many millennials, however, haven’t had this financial opportunity. Some are in their late 20’s or early 30’s and have yet to pull the trigger on home ownership. Why? Well, student loan debt is bleeding them dry.
Student Loan Debt’s Stranglehold on Home Ownership
The Findings
A new Fed report shows that from 2004 to 2014, there was a ten percent drop in the number of people aged 24 to 32 buying homes. Of that ten percent, twenty percent of them were likely due to student loan debt alone. The other ninety percent could have been partly influenced by student loan debt in their consideration to back off of home ownership.
These findings aren’t surprising. Young people in America are currently on the hook for $1.5 trillion in student loan debt. That’s a lot of money, suffice it to say. To be fair, student loan debt alone isn’t the main factor in the reduced home ownership, but it is playing a significant role.
Bigger Trends
Across the board, the Fed found that home ownership during this period fell 4 percentage points, regardless of age. It is telling, however, that the steepest decline came from people aged 24 to 32. In the grand scheme of things, young people are having a much harder time becoming financially stable than we’ve seen in prior generations. According to economists, the average student loan debt doubled in the time between 2004 and 2015, saddling the average graduate with $24,000 in student loans.
The Impact
You don’t need us to tell you that this is a bad thing. Home ownership is one of the biggest contributors to a strong credit score, and consumers need good credit to make most large purchases. Speaking of large purchases, many millennials aren’t comfortable enough financially to make those either, even if they have good credit. Sales of new cars are down year over year, and the data points to increasing need for outside solutions to the debt crisis.
Possible Solutions
The Fed has suggested that a good way to address the situation may involve more direct government handling of student loans. For instance, income-based repayment plans or restructuring of outstanding debt. Some analysts have even suggested that the economic benefits of forgiving outstanding loans may outweigh the negative impact on lenders.
