As it turns out, having a lot of student-loan debt doesn’t “greatly reduce young people’s chances of homeownership” — as long as they graduate, a new analysis by Zillow has found.
The report is the latest to put into doubt other findings that show a closer link between the $1.2 trillion U.S. student debt-load and first-time homeownership.
Zillow’s findings challenge this common concern: Student loan payments are holding back young people from getting together the necessary downpayment and sufficient income to buy a home.
Zillow says that debt loads don’t materially hurt the potential of homeownership – especially if the indebted student gets at least a four-year degree.
“College students paying their tuition with borrowed money can rest easy this fall in their dorm rooms: the income advantage of getting a degree pays off in terms of being able to buy a home in the long run,” said Zillow Chief Economist Dr. Svenja Gudell. “Student debt isn’t the evil-doer it’s made out to be, at least not when it comes to homeownership.
However, it is possible that student debt could delay homeownership, he addes.
People in their 20s and 30s are renting longer because they’re delaying marriage, paying a lot in rent, and struggling to qualify for a mortgage when they finally find an affordable home, Gudell said.
Add to that their student debt.
Here are some key findings from Zillow:
- The chances of a married couple with no student debt owning a home are about 69.8 percent, if at least one of them has a bachelor’s degree. If the same couple has $30,000 in student debt, their homeownership chances drop slightly, to 67.7 percent.
- The least likely to own homes are people who have student debt, but no degree. In fact, a couple who borrowed more than $30,000 for school, but never graduated, has a less than 40 percent chance of homeownership.
- Graduates with advanced degrees are the most likely to own a home, even if they racked up a lot of student debt. For example, if a couple owes $50,000 in student loans, but one of them has a master’s degree, they have a 75 percent chance of homeownership. A similar household with just $10,000 in loans and only a bachelor’s degree has just a 69 percent chance of homeownership.
- Student debt has the greatest impact on the homeownership rate of people with two-year associate’s degrees. A couple with AA degrees and no debt has a 70 percent chance of owning their home. That declines significantly as debt grows. If the same couple has $50,000 in student debt, they own their home only 57 percent of the time.