The number of college graduates with student loan debt as well as the average amount of debt have increased substantially in the last decade.
Many studies have focused on the effect of student debt on the ability of millennials (generally those born between 1980 and 1995). Some of those studies have found that student loan debt hinders one’s ability to buy a home, while others have concluded it does not restrict access to credit.
More than six in 10 millennials (63 percent) have graduated or will graduate with student loan debt and nearly half (46.5 percent) are still paying off their student loans, according to a survey of 1,338 millennials conducted by LendingTree.
The average amount of student loan debt per individual, according to the LendingTree survey, was $27,162. Millennials are paying an average of approximately $317 per month toward their student loan debt, which is 11.3 percent of an average monthly take-home pay amount of $2,808. With student loan debt taking up more than $300 per month on average, many millennials reported that they were having to delay certain investments, purchases, or life events. Buying a home was the second-most frequently cited event millennials had to delay, with almost half (45.3 percent) saying they had put off buying a home because of student debt obligations (travel was first with 53.3 percent). That is a critical statistic, because many analysts have cited the millennial demographic as the key to increasing the homeownership rate (a 51-year low 62.9 percent in Q2).
In a hypothetical situation in which student loan debt were to be absolved, LendingTree found that 41.8 percent of millennials surveyed said the money that previously went to paying student loan debts would go toward buying a home (second behind only saving for emergencies, with 54 percent).
A report from NeighborWorks America in late 2014 warned, “If we don’t mitigate the effect student loan burden is having and will have for years to come on homeownership, the country will lose a significant amount of economic activity and hundreds of thousands of people will be unable to benefit from the stability and financial value that homeownership has been proven to offer.”
Slightly less than one-quarter of millennials surveyed (24.1 percent) reported that their student loan debt has no effect on their spending. Nearly one-third (30.5 percent) said their student loan debt affects their spending “very much.”
A study from the Federal Reserve Board in November 2015 concluded, “Tuition rates continue to rise, so the amounts students will need to borrow may increase in the future. Increased debt levels could continue to depress homeownership rates for future cohorts of college students. Measures taken to reduce tuition—or to curb borrowing beyond what is necessary to fund attendance—could ﬁght this trend. Similarly, our results provide a measure of how eﬀective student loan forgiveness programs could be at increasing the homeownership rate of young adults. Limiting or expanding students’ access to education loans in general, however, would have ramiﬁcations that are beyond the scope of this study. In particular, if student loans allow individuals to access college education—or, more broadly, acquire more of it—student loan debt could have a positive eﬀect on homeownership, as long as the return to this additional education allows individuals to suﬃciently increase their future incomes.”
LendingTree’s estimate of individual student loan debt is actually lower than some recent estimates—for example, Studentloanhero.com recently reported an average of $37,172 per borrower, an increase of 6 percent from last year, with some 43 million borrowers owning a combined $1.3 trillion in student loan debt.
While some surveys may indicate that student loan debt is hindering homeownership, the share of mortgage loans where the holder has some amount of student loan debt hit an all-time high two years ago. In July, Black Knight Financial Services reported that for 2014, the most recent full year with data available, the share of mortgage originations with student loan debt hit a new high at 19 percent. Black Knight also reported that 15 percent of all active mortgage holders had some level of student loan debt—an increase of more than 40 percent over the last decade.