Student loan debt is frequently held out as Exhibit A for why homeownership among young adults has been falling. More than 80 percent of millennials cite college debt as their reason for renting longer, and the resulting delay in home buying averages seven years, according to a survey by the National Association of Realtors.
Despite this, increased funds available from student loans may have actually bolstered home buying for some people, according to the Federal Reserve’s Sarena Goodman, the US Treasury Department’s Adam Isen, and Chicago Booth’s Constantine Yannelis.
The researchers studied student debt and homeownership rates between 1998 and 2013, focusing on differences attributable to student loans in the year student borrowers turned 24, a significant marker in the federal student-loan system. Undergraduate borrowers under 24 are considered dependents of their parents, while those who turn 24 before January of a given school year are deemed independent and have higher annual borrowing limits.
“Contrary to much of the public discourse, increased access to loan dollars appears to be commensurate with more homeownership,” Goodman, Isen, and Yannelis write.
Borrowers who turned 24 by the January deadline received about 40 percent more in federal loans and grants, the researchers find. Some of that money was used to “help student borrowers finance important noneducation spending,” including buying a home.
Homeownership for these borrowers was persistently about half a point higher over the next several years than for those with birthdays after the cutoff. For each additional $10,000 in federal loans, homeownership increased by 2.4 percentage points, the researchers estimate.
For ideas and lessons about how to reform the system, some researchers are looking to Chile.
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The Cost of an Engineering Degree . . . to the College, Not the Student“Increased liquidity best explains our results,” write the researchers, who didn’t find evidence consistent with other factors such as the possible increase in wages, and the perceived gain in wealth, as a result of higher educational attainment for these borrowers.
The conclusions suggest student loans could have benefits beyond education, as borrowers use the extra cash to finance other things, such as housing—something policy makers could consider when making decisions about student-loan limits.
Sarena Goodman, Adam Isen, and Constantine Yannelis, “A Day Late and a Dollar Short: Liquidity and Household Formation among Student Borrowers,”Working paper, April 2018.
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