Student debt may defer – but not eliminate – homebuying goals

October 22nd, 2014

A report from the Federal Reserve Bank showed student debt can lead to delayed homebuying among college graduates.

As the housing recovery rolls on, the debate regarding whether rising student debt is leading to shrinking homeownership rates continues to make headlines. A recent report from the Federal Reserve Bank determined education debt delays the homebuying aspirations of college-educated Americans.

The Fed examined three groups of potential homebuyers: those who never attended college, those who attended college but didn’t have any debt and those who attended college and have debt. Homeownership rates for these groups between 2004 and 2010 were used to determine whether student debt had any affect on consumers’ ability to buy a house.

“Taken together, our results suggest that for those with college education student loan debt more likely affects the timing of homeownership than people’s eventual attainment of it,” the report read.

The researchers noted some areas of contention with their results. First, they acknowledged the data doesn’t show homeownership rates decrease as the amount of student debt increases.

“For example, the relatively higher homeownership rates among those who went to college but did not have any student loans might be caused by lower overall debt burdens but potentially also by other factors that we have not explicitly accounted for, such as the ability of one’s family to provide funds for a down payment,” the report read. “Second, our analysis is limited to the period from 2004 to 2010 (due to data limitations).”

Resources are available for homebuyers
The Fed data’s second caveat means the report does not reflect trends regarding how increased mortgage underwriting regulations and student debt have affected homeownership rates in recent years. Despite this limitation, it is clear borrowers are facing tougher underwriting, as the outcome of tighter lending standards have often been expressed.

Although regulators are taking more steps to ensure borrowers are qualified for a home loan, there are measures to avoid restricting access to credit. Freddie Mac, for example, recently published a list of ways in which it is helping consumers get financing for a home. The first two steps are providing more borrower education and updating and clarifying policies.

Freddie Mac’s third step was to make its offerings more accessible. Four services were changed under this step:

  1. Gift funds count as part of the required reserve amount for financing a single-family, two-to-four-unit home.
  2. Home Possible Mortgages, which are offered by Freddie Mac, have a low down payment requirement and have a fixed interest rate, can be used for building homes.
  3. Homebuyers can access home equity lines of credit and other secondary financing options.
  4. There are more interest-rate buy-down options.