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Student Debt Holding Homeownership Back

Is Student Debt Holding Homeownership Back?

Conquer your student debt. Refinance now.

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The dream of owning a home may stay a dream longer for some Americans. In January, the Federal Reserve conducted a study on the correlation between homeownership rates and student loan debt. The Fed’s study showed an 8.8% drop in homeownership for those between 24 and 32 years old from 2005 to 2014, and a 3.9% drop for the overall population over the same period.

At the same time, “outstanding student loan balances have more than doubled in real terms (to about $1.5 trillion) in the last decade, with average real student loan debt per capita for individuals ages 24 to 32 rising from about $5,000 in 2005 to $10,000 in 2014.”

More and more, borrowers are citing their student debt as the main reason to put off buying a home. But what if we broke this group down further?

We analyzed thousands of student loan refinance applications to define the relationship between homeownership, degree earned, and the state the applicant calls home. How will this data match up with the federal study?

Read more: Renting vs Owning: What’s the Difference to Your Budget?

How Does Homeownership Change After Graduation?

homeownership grad year

In our analysis, we found that the longer someone has been out of school, the more likely it is for that person to own a house. This includes anyone who finished any post-secondary degree, not just Associate and Bachelor degrees.

Earth-shattering revolution, we know. However, our data suggests homebuying consistently goes up over time at a very smooth, consistent rate. There doesn’t seem to be a clear time after finishing a degree when people universally make the decision to buy.

It is important to consider when the Great Recession started and how the housing market has recovered since then. Unemployment rates for college grads reached a high of 4.8% in June 2009, compared to 8.1% for those with some college experience, but no diploma. It took nearly six years for this cohort to reach a 4.8% unemployment rate. Shortly after the Great Recession, college grads were able to recover and take further steps in their financial lives.

Our data suggests that at eight years post completing their last degree, Earnest applicants are about 50% likely to own a home. This is compared to 36% of age 24 to 32 borrowers included in the Fed study, and 65% of the total population in 2014.

Let’s break this group down further, and parse it out by the highest degree earned.

Which Graduate is Most Likely To Own a Home?

most likely to own

Here we can see how homeownership changes over time since graduation year, separated by the highest degree earned.

While MBAs are the most likely to own a home before or right after graduating, MDs quickly move into homeownership after finishing their education and have the highest rate of ownership over time. Every other graduate degree moves at a much more steady rate.

However, this study doesn’t include those who had their MBA tuition reimbursed by work, so MBAs could have a slightly higher or lower rate of homeownership within this timeline.

Bachelor degrees have a steady rise in ownership over time, but as they are generally obtained earlier in life, there is a lower chance of having the desire, or savings, to own a home right after graduation.

It seems clear that those who don’t just stop at a Bachelor’s degree but continue on are more likely to own a home over time. But where in the US do Bachelor’s degree holders buy homes within a few years after finishing school?

Homeownership by Region

We broke down our applicants to only include those who earned a Bachelor’s degree five years ago, to see which region has the most homeowners of the cohort:

homeownership by region

California, Massachusetts, and New York are among the top five most expensive states to live in and contain some of the most expensive cities to buy in: NYC, San Francisco, San Jose, Anaheim, San Diego, LA, etc. The barrier to purchasing in these markets is already high before you add in student loan debt.

A number of these states also have an outsized population of college graduates living in their major cities. In Seattle, 63% of the residents over 25 have a college degree. San Francisco and DC and second and third, with 58% and 57% respectively. This means that homes and housing, in general, can be priced at a premium, as a majority of the population has a higher earning potential.

DC is also ranked as one of the most expensive cities to live in and is recognized as one of the most transient cities in the US, so why buy if you are just going to leave?

Read more: The 5 Most (and Least) Expensive States and Cities for Renters 

Our Findings Vs the Fed’s

The Fed study found that “Student loan debt can be a meaningful barrier preventing young adults from owning a home.” Our study would agree with this, but might also show that those who complete their degree and then earn a higher degree are more likely to own a home over time.

Earnest’s analysis is based on the anonymized responses of tens of thousands of student loan refinance applications. For homeownership analysis, we checked for a Mortgage on the loan application documentation.

Conquer your student debt. Refinance now.

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Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.