August 27, 2018

Student Loans Keeping Young People from Home Ownership

Over 86% of millennials want to buy a home and believe it to be a good investment, but only 15% currently have a mortgage.  So, what gives? A new study completed by the National Association of Realtors and written about by CNBC tries to answer this question for us. And they found the same culprit destroying millennials home ownership dreams as is destroying their marriages – student loans. The study found that 83% of people age 22-35 blame their student loans for their lack of homeownership. 

One of the top factors that determine your credit score and your likelihood of defaulting on a loan is your debt to income ratio. Banks don’t like for this ratio to exceed 36% for borrowers, and that’s by combining credit card debt, student loans, car payments, and mortgage together. And with the median income for student loan borrowers being $59,746 and the average monthly payment for student loans being $351, you can quickly see that space is limited for any other forms of debt.

Studies have repeatedly found that real estate is the most common and dependable wealth-building vehicle for the average American. Home ownership has played a vital role in the financial independence and retirement security of our older generations. Sadly, out of control student loan costs, are blocking the vast majority of the millennial generation from being able to take this important step. And unless the situation changes, Generation Z will be facing the same roadblock to homeownership very soon.

The CNBC article notes that banks view student loans as “unsecured” debt. In other words, as opposed to a car that can be repossessed, your student loans are not going away until you pay them off. Like credit cards, they will just continue to hang around, accruing interest, and putting a tighter chokehold on your finances.

But as we covered here, it’s actually worse than that.  Unlike credit card debt, it’s nearly impossible to clear student loans through bankruptcy and the government does not have to get a judgment against you to begin garnishing your wages.  No other form of debt gives debt collectors as much power as is given to student loan collectors. You simply can’t run and hide from student loans and you can’t get rid of them. They will haunt you forever until they’re gone.

And the banks know this.

This is why lenders are so hesitant to underwrite mortgages for individuals with heavy student loans. They fully understand that, through wage garnishment, the government can eventually force student loan borrowers to pay their student loans ahead of their mortgages, whether that’s something they want to do or not.

I realize that the picture I have painted so far seems very bleak, but there is good news. Many students have overcome the student loan monster and you can too. If you haven’t begun your college education yet, I urge you to read our guide on how to graduate without student loans.

If you have already graduated with student loans, it’s not too late! I’ve personally been inspired by the stories of countless students who have paid off tens of thousands and, yes, hundreds of thousands of dollars of debt. You can do it! You can get rid of your student loans and you can own a home. You just need a plan to get you there.

And if you’re sick and tired enough of your student loans that you’re ready to start kicking them out of your life, start by reading our guide to getting out of student loan debt.

About the author 

Clint Proctor

Hi, I'm Clint! I love writing about everything personal finance. In addition to this site, my work has been featured on several major publications including Business Insider, Forbes, Credit Karma, and U.S. News and World Report. My hope is that you'll be able to find plenty of helpful information and inspiration on this site to help you reach your financial goals. Thanks for visiting!

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