Earlier this year levels of home ownership amongst Americans under the age of thirty five hit the lowest levels on record. At the same time levels of student debt reached a new high.
Not surprisingly policymakers and economists have debated whether the two are related and are concerned high levels of student debt could be responsible for the fall in the numbers of young people buying homes. It’s estimated college students graduating this year will have an average of $33,000 of student debt, a figure that has risen by 32% from 2007 when adjusted for inflation. The amount of debt carried by those who went to grad school is also up considerably. These figures mean student debt is now $1.1 trillion, nearly double the figure seen in 2007. Even worse, much of this debt is at relatively high interest rates. In comparison levels of home ownership for those aged under 35 have fallen to 36.2% compared to a high of 43.6% in 2004.
The article in the Wall Street Journal goes on to point out that economists are arguing the level of student debt is undermining the property market and is affecting the US economy. However other experts don't feel the two factors are necessarily related and feel this decline in younger home buyers could be entirely down to the economic crisis and the fact that it's simply harder to get a mortgage these days. While some economists may disagree on the reason for declining home ownership levels, most agree that increasing numbers of college graduates help improve the skills of the workforce and will boost the economy. They point out student loans are an essential tool for families to be able to afford a college education, and that doing so helps improve lifetime earnings. One problem faced by recent graduates is that lenders weight student debt more heavily than they did before the crisis.
Research shows that before the recession Americans age 30 with student debt were more likely to have a mortgage than those without. Nowadays the opposite is true, as those without student debt are more likely to have a mortgage. In addition those with student debt are likely to have much lower credit scores, especially as delinquencies increase. The average credit score for those with student debt is in the low 600s, while the credit score required for home purchase loans is in the mid-700s. Even graduates with well-paid jobs and who are able to afford a mortgage are being turned down due to their student debts.