Does increasing student debt lead to lower homeownership rates among young adults?

May 25, 2016

Post by Silda Nikaj, TCU Center for Urban Studies & Department of Economics

The homeownership rate for 25 to 29 year olds fell from a 30 year high of 41.8% in 2006  to a 30 low of 31.7% in 2015 (US Census).  Many factors can explain the declining homeownership rate among young adults including long-term demographic transitions, lending environment, housing affordability, and individual circumstances, such as student loan debt.  Student borrowing doubled between 2001 and 2011, while college enrollment increased by a third. Roughly 71% of students attending any higher education institution borrow. Most students borrow small amounts – less than $10,000.  A very small share borrows large sums- 4% take on $100,000 or more.  

There are several ways that increasing student loan debt can delay transition into homeownership. Student debt repayments may crowd out savings for a down payment, a necessary step in financing a home. More outstanding debt and lower credit scores may lead lenders to offer less favorable terms on home loans than would have otherwise been expected in the absence of student loan debt. Rising default rates among student loan borrowers, directly affect credit scores, as student loan amount and payment history are reported to the credit bureaus. Many young adults may be avoiding additional mortgage debt in the presence of student loan debt. Most importantly student loan debt cannot be discharged in bankruptcy. 

At Washington DC Urban Economics Day 2016 held at George Washington University, I and my colleague Joshua Miller presented findings from our study examining the relationship between student loan debt and homeownership for a cohort of young adults coming of age during the Great Recession. A number of studies observe that those with student loan debt have a lower probability of homeownership. We confirm this result and find that 26 year olds in 2012 with student loan debt are 4 to 6 percentage points less likely to own a home than those without student loan debt.

We extend the analyses of the current literature and also examine the amount of student loan, level of post-secondary educational achieved, and type of post-secondary institution. We find that among borrowers a 10% increase in debt is associated with a 0.07 percentage point reduction in the probability of owning a home. The analysis suggests that these effects are driven primarily by students who are degree non-completers, those attending less selective schools, and those attending public and for-profit institutions.

Although the results from this analysis show a negative association between student loan debt and homeownership, our results should not be used to deter meaningful investments in education. Evidence suggests that education is still an investment worth making, and the return to college may be larger for students entering the labor market today than in previous generations. Instead the results demonstrate the importance of considering the amount of debt, level of post-secondary educational achievement, and type of post-secondary institution in estimating the effect of student loan debt on homeownership. Therefore, in addition to income driven repayment programs, policy makers may also want to focus the discussion of how to improve completion rates and the outcomes for those attending less selective post-secondary institutions.


Silda Nikaj is an Assistant Professor in the Department of Economics at Texas Christian University

Joshua J. Miller is an Economist with the Policy and Development Research at the Department of Housing and Urban Development