Student loan debt is an increasing problem in the United States. It is impacting life decisions for many young adults, millennials and yes, even Americans approaching retirement age.
Debt can affect everything from where to live to whether to start a family.
With the debt load in this country from student loans at $1.4 trillion – or 10 percent of all outstanding debit in the U.S., it’s also having a significant impact on the housing market.
With the debt rising, homeownership rates are falling – especially among younger generations.
Recently, the National Association of REALTORS® (NAR) and American Student Assistance® (ASA) worked together to conduct a study of student loan borrowers who are currently in repayment, splitting them into younger millennials (born between 1990 and 1998) and older millennials (born 1980 to 1989).
The results of the survey are staggering, showing that even those who pay their bills on time are having a hard time buying a home.
According to the survey, 20 percent were delayed by at least two years in moving out of a family member’s home after college due to their student loans.
And while 20 percent are currently homeowners, 15 percent live with friends or family and do not currently pay rent.
The Student Loan Problem in Minnesota
And this is heightened on a local level in some states.
Take Minnesota for instance.
According to a report published by University Government and Community Relations at the University of Minnesota, more than half of the college’s students graduate with debt.
According to a report from LendEdu, statewide in Minnesota, college students average roughly $31,000 in debt, which is about $4,000 higher than the national average.
“Minnesota has always tended to have a higher student debt than other states,” said Megan Fitz Gibbon, a financial aid specialist at the Minnesota Office of Higher Education to the Minnesota Daily. “Part of that is because our campuses or colleges have higher tuition than many other states … but we also tend to have higher family incomes, so families may not qualify for those need-based scholarships as much because they have higher incomes so they rely more on student loans.”
Part of the problem is a lack of education for students on what college is going to entail financially.
According to the NAR/ASA study, before attending college, 28 percent of borrowers knew generally the school “might be expensive” or “might be cheap”, but had no further information.
Additionally, more than one-quarter of borrowers had an understanding of tuition, but had little understanding of other costs such as fees and housing expenses.
This likely leads to graduates going into forbearance on their loan, or going into default.
Making matters worse is that it’s not like these Millennials are simply eating avocado toast.
Eighty-four percent of respondents are working full-time. Eight percent are working part-time and the majority of those are looking for full-time work.
Student Loans Delay Homeownership
Forty-two percent of poll respondents have delayed their move out of their family home because they can’t afford to live on their own, let alone purchase a home.
Twenty percent delayed moving out of a family member’s home after college for at least two years.
Among non-homeowners, 83 percent believe their student loan debt has delayed them from buying a home.
The primary reason for this lack of homeownership is the inability to save enough money for a down payment.
What To Do?
So, what can be done – especially when, according to the Georgetown University Center on Education and the Workforce, 65 percent of all jobs in America will require a college education?
Going to college is important in the United States for us to stay competitive globally, but there needs to be financial relief for these students who are attending college to make sure that is the case.
Solutions need to both reduce student debt levels in the future and enable current borrowers to manage education debt successfully, so they can simultaneously achieve other financial goals.
To that end, NAR makes the following policy recommendations to ease the struggles of past, present and future borrowers:
Allow students to refinance their loans:
As mentioned above, high student loan payments have made it very difficult for potential homebuyers to save up for a down payment. Lawmakers can help student loan borrowers mitigate this problem by providing student loan borrowers the ability to refinance into lower interest rates.
Increase financial education for college students:
Colleges can help minimize borrowing by teaching students basic personal finance 101, such as budgeting and distinguishing between wants and needs. Additionally, using student loans as a teaching tool to convey such concepts as principal, interest and capitalization will lay the groundwork for students to be more educated consumers for future purchases – like a home.
Student loan simplification, clarity and education of repayment options:
The loan process can be very confusing for both parents and students. Thus, the loan process for all student borrows should be simplified and student loan borrowers should have access to education to help give them a better understanding of debt and repayment options.
Streamline income-based programs:
Currently there are numerous income-based repayment programs with different income caps, repayment schedules and forgiveness options. This has created confusion amongst students, parents and loan servicers in trying to identify the best repayment option for the borrower.
Standardize mortgage underwriting guidelines:
Mortgage underwriting guidelines related to student loan debt at Fannie Mae, Freddie Macand various government agencies need to be standardized to promote fairness and to ensure student loan debt is calculated appropriately in a borrower’s debt-to-income calculation.