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November 30, 2015

How Student Debt Impacts Homeownership

Many thanks to Satinder Haer of Zillow for contributing this post!  -Heather

Buying a house is the biggest milestone after graduating college for many people. But if you’re facing a mortgage-sized student loan payment each month, homeownership may feel impossible. One common belief is that student loan debt prevents many from saving for a down payment. However, new numbers show student loan debt might not be a major hindrance to homeownership.
As long as you obtain a four-year degree or higher, student debt has a minor impact on your likelihood of owning a home. If you obtain an undergraduate degree without taking out any student loans, your probability of homeownership is 70 percent. But, if you get that same degree and accumulate $50,000 of student debt in the process, your probability of homeownership drops by merely 4 percent. While saving a down payment might take longer if you’re also managing undergraduate debt, the research proves that student debt has a small impact on your probability of buying a home.
Among married couples, the trend is similar if at least one partner has a degree. If you or your spouse has a bachelor’s degree and no student debt, your probability of owning a home is 69.8 percent. However, if you have $30,000 of loans between you, that likelihood is still a remarkably highly 67.7 percent. There’s a negligible 2.1 percent difference in odds of homeownership for couples with $30,000 of debt versus none. The key is earning a diploma, whether you’re married or single. 
The same marginal effect of student debt on homeownership appears even at the graduate school level. In fact, the probability of owning a home is actually highest for individuals with a masters, law, medical or doctorate degree—despite the high price tag associated with these degrees. If you graduate from a master’s degree program with no loans, you have an 80 percent chance of owning a home. Graduate with that same master’s and $50,000 of loans and your probability only decreases by 5 percent. Attaining a higher level of education prevents you from experiencing the adverse effects of student loan debt when you buy.
The only individuals who experience serious negative impacts of student loans on their aspirations of homeownership are those with an associate or incomplete degree. With an associate degree, your probability of homeownership plummets from 73 to 57 percent if you graduate with no debt versus $50,000 of student debt. Similarly, if you rack up $50,000 of loans but never earn a diploma, your chances of homeownership drop from 48 percent (if you have no student debt) to just 33 percent. Obtaining at least a bachelor’s degree is essential if you don’t want student debt to decrease your likelihood of becoming a homeowner. 
The data demonstrates student debt has a small impact on homeownership if you’ve earned a four-year degree or higher. While your loans may seem like a hindrance, creating a budget and calculating your affordability helps you determine whether you’re ready to seek out lenders or delay the purchase to sort out your finances. The impact of student loan debt has been long overstated and exaggerated; crunching your own numbers, student loans and all, can help you determine how far away homeownership really is for you.
By Heather | Category: Personal Finance, Student Debt  
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