Student Borrowers Delay Major Purchases as Debt Mounts
April 23, 2013
Home ownership is the foundation of solid communities and maturing families. But as student loan debt has appreciated over the last decade, fewer student borrowers are financing the purchase of a home, says the Wall Street Journal.
- In 2012, 22 percent of 30 year olds with a history of student debt had or previously had a mortgage, compared to 24 percent of 30 year olds who never had any student debt.
- In addition to purchasing houses, young people with student debt are less likely to have a car loan than those who didn't have student loans.
- The 2012 findings, published by the Federal Reserve Bank of New York, are a reversal from the rest of the previous decade when student borrowers were much more likely to own a home or car.
Credit scores for student borrowers have fallen substantially since the recession as income-to-debt ratios have risen and delinquencies occur more often. For student borrowers with blemishes on their credit history, large purchases, like mortgages on a house or an auto loan, become more difficult.
- Student debt is now more than $1 trillion, a more than 70 percent increase from 2006.
- For every $100 in monthly student loan payments, young home buyers can typically reduce the amount they can spend on a home by about $20,000.
- For students who have monthly payments of several hundred dollars per month, smaller homes in less desirable neighborhood may be all they can afford.
The Federal Reserve warns that high student debt could slow consumer spending in the coming years but increase the numbers of skilled workers, which will increase productivity and economic growth in the long run.
Source: Josh Mitchell and Ruth Simon, "Student Borrowers Retreat From Home Buying, Report Says," Wall Street Journal, April 17, 2013.
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