Student debt hasn’t always meant a slower launch into adulthood. Until the Great Recession, having some student debt didn’t prevent thirty-somethings from buying a home. In fact, the trend showed that young Americans were buying homes at a very normal rate, even with student debt. That’s because going to college meant a higher salary and financial stability.
Today, that trend has completely reversed. Young Americans are buying homes at much smaller numbers, according to the New York Federal Reserve Bank, because of increased student debt and more frequent defaults on student loans.
Last week, the Federal Reserve Bank of New York launched a three-part series on its blog called The Student Loan Landscape, examining the complicating effects of student loans on young Americans’ financial lives. Economists at the New York Fed found that Millennials with student debt are less likely to own homes than those who don’t have any student loans. Much of this has to do with credit scores, because missing student loan payments can bring down scores considerably, keeping student debtors from taking on any home-owning debt.
The economists at the New York Fed examined a nationally representative sample of anonymous Equifax credit data, and found that the average amount of student loan debt per borrower has risen a shocking 74 percent in the last decade alone—from roughly $15,000 each in 2004 to $27,000 in 2014.
Of course, most Americans with student loan debt have far less than $27,000; the average is so high in part because of the 1.8 million debtors with around $100,000 each in debt. However, according to the Institute for College Access and Success’ Project on Student Debt, six states had an average debt amount of over $30,000 in 2013, and only one state had an average student loan debt below $20,000. Additionally, over 650,000 federal loan borrowers who began repayment in 2011 defaulted by 2013.
Researchers at the New York Fed point to student debt for not only hindering buying homes, but other major adult milestones as well. Donghoon Lee, a research officer at the New York Fed said, “Student loan delinquencies and repayment problems appear to be reducing borrowers’ ability to form their own households.” This aligns with a rising body of evidence suggesting that Millennials are putting off marriage and kids until their financial lives are a bit less messy.
Still, some argue that student loans aren’t actually keeping young Americans from buying homes. A new report from Wells Fargo Securities published last week suggests, “Student loan debt looks more prone to delay, not derail, homeownership for most Millennials.”
Even if it’s just a delay, the implications of student debt on the ability to make a big purchase like a house seem clear: It shouldn’t really come as a surprise that $83 billion was lost in home sales last year when student debt surpassed $1.2 trillion nationwide.
Whether student loans are “derailing” or simply “delaying” young Americans’ ability to own their own home and start their lives, it’s clear that the increased collective student debt today is forcing Millennials to make tough financial decisions, which is a great departure from a generation or even decade ago.