What is the fundamental issue?
Research continues to indicate that the continued rise in student debt along with a weak labor market has a long-term impact on the ability of first-time homebuyers, particularly lower income consumers, to qualify for mortgages. Many of these potential borrowers find a significant portion of their total monthly debt is comprised of student loan payments. Additionally, lower price point homes available to purchase are at historical lows which further price out potential buyers with student loan debt as home prices continue to rise. While much of the research and focus has been on the impact to Millennial borrowers, new studies are showing that student loan debt burdens borrowers of all generations, including Baby Boomers and Generation-X consumers who are shouldering the weight of the student debt for their children or their own after returning to college post-recession.
I am a real estate professional. What does this mean for my business?
NAR research indicates that student debt negatively impacts the ability of potential home buyers to save for or meet down payment requirements. Student debt is also having an impact on potential homebuyers’ ability to qualify for a home due to high debt-to-income levels. These factors have limited their access to affordable mortgage options needed to purchase a home. Though a vast majority of borrowers have been responsible and diligent in making their student loan payments, their ability to save for priorities such as emergency savings, medical expenses, and down payments have become more difficult and impact their decisions such as purchasing a home.
NAR strongly supports policy proposals to allow student loan borrowers to refinance into lower interest rates and to streamline loan programs. Additionally, NAR supports policy proposals that promote student loan simplification, clarity and education. Further, NAR supports policies that provide tax relief to student debt holders, as well as to employers who choose to assist with their employees' student loan debt burdens. In addition, NAR supports policies that provide tax relief to those borrowers with forgiven student debt. NAR also shall ensure that mortgage underwriting guidelines related to student loan debt are standardized and do not impair homeownership.
In the last Congressional session, lawmakers in both parties proposed changes to the student loan program to deal with the large outstanding debt.
Democrats backed measures that would cap the burden on borrowers. Republicans argued that college graduates earn more than non-graduates and should be able to pay off their loans. However, Republicans were willing to simplify the federal loan system and they advocate giving borrowers more clarity about the debt and their ability to pay it back. Also, some Members of Congress seemed interested in tax changes to assist those paying off student loans.
The CARES Act, passed during the pandemic, allows employers to pay up to $5,250 toward student loans on behalf of employees while the employees would not owe U.S. federal income taxes on the payments. This plan has been extended to 2025. While take-up of the plan has been slow to start, the incentive may become more attractive to employers as they try to attract talent in the current, turbulent job market.
The Adminstration and relevant agencies continue to make changes to the Public Service Loan Forgiveness program which relieves federal student loans for those serving at non-profits or in public service. Further reforms and changes to this program and other federal loan programs are being undertaken now with policy changes to be announced early in 2022.
In response to the COVID-19 pandemic, the Department of Education has paused federal student loan payments, with the latest pause extended through May 2022. Future pauses are unlikely though will be evaluated as the economy recovers.
The Biden Administration continues to evaluate its options for student debt relief. The progressive block of the Democratic party is pushing for some form of student debt cancelation, with some calling for all student debt to be relieved and others setting a cap. The Administration for now has been reluctant to make any big changes aside from changes to current loan programs.
Conventional Financing and Policy Committee
None at this time.
Letters to Congress
Letters to federal agencies
NAR Federal Issues Tracker
We've already done the research for you. References (formerly Field Guides) offer links to articles, eBooks, websites, statistics, and more to provide a comprehensive overview of perspectives. EBSCO articles (E) are available only to NAR members and require a password.
CARES Act (COVID-19 Stimulus) and Student LoansAARP Answers: Student Loans and the Coronavirus (AARP, Dec. 22, 2021)
If you want to continue making payments, those payments will be counted toward the principal of your loan, reducing your overall interest payments and ultimately paying down the loan faster.
If you're in default on your federal student loans, your wages, tax refund, and Social Security benefits including disability benefits won't be garnished during the forbearance period. In addition, your loans won't accrue interest during the forbearance period. Once again, private loans are not covered by the CARES Act.
COVID-19 Emergency Relief and Federal Student Aid (Federal Student Aid/US Dept. of Education)
The student loan payment pause is extended until the U.S. Department of Education is permitted to implement the debt relief program or the litigation is resolved. Payments will restart 60 days later. If the debt relief program has not been implemented and the litigation has not been resolved by June 30, 2023 — payments will resume 60 days after that. We will notify borrowers before payments restart.
Student Loan Debt’s Impact on Home Ownership
Student Loan Debt Found to Be a Major Contributor to Homeownership Disparities (Bankrate, Mar. 7, 2023)
A 2022 Bankrate survey reported that 64 percent of Black respondents and roughly 70 percent of Hispanic borrowers have delayed financial milestones – like buying a home – due to their student loan debt. In comparison, less than half of white respondents agreed.
Can You Get a Mortgage with Student Loans? (Nerdwallet, Feb. 15, 2022)
With stable income, timely bill pay and emergency fund and retirement savings, you may be in a good position to buy a house despite your student loans. Included are some options to make a stronger application.
Student-Loan Burdens Upend the American Homeownership Dream (Bloomberg Wealth, Jan. 5, 2022)
Overall, the rate of homeownership among student borrowers age 18 to 35 has dropped 24% in the decade through 2019, the report shows. People living in Black and Asian communities saw the biggest declines -- even as they started with the lowest rates back in 2009.
The Impact of Student Loan Debt (National Association of REALTORS®, Sep. 2021)
- While the plurality say student loan debt has not impacted any of the tested employment decisions (42%), others say debt has kept them in disliked or uninteresting jobs, forced them to take second jobs, or take a job outside their preferred field.
- Over one quarter of student loan debt holders say their debt has impacted their decision or their ability to purchase a home (29%), take a vacation (35%), or purchase a car (31%).
- Approximately half of student loan debt holders say their debt has impacted their life choices. One third say it has impacted their ability to continue their education (33%) while 14% say it has impacted their decision to start a family.
Heavy Student Loan Debt Forces Many Millennials to Delay Buying Homes (NPR, Feb. 1, 2019)
“Homeownership rates for people ages 24 to 32 dropped nearly 9 percentage points between 2005 and 2014 — effectively driving down homeownership rates overall. In January, the Fed estimated 20 percent of that decline is attributable to student loan debt”
Homeownership among Young Americans: A Look at Student Loan Debt and Behavioral Factors (The Journal of Consumer Affairs, March 1, 2018) E
From Abstract: “Three key findings arise from the research. First, life cycle and demographic characteristics, such as marital status, education, and income, continue to be strong predictors of homeownership. Married households with a college degree and children are among the most likely to own a home. Second, young adults with student loan debt are no more or less likely to own a home than someone without debt after controlling for a number of factors; however, students who have already paid off their loans are more likely to own a home. Finally, respondents who express a willingness to take risks in finances are more likely to own a home while those who are more conscientious are less likely to own a home.”
eBooks & Other Resources
Generation Debt: How Our Future Was Sold Out for Student Loans, Bad Jobs, NoBenefits, and Tax Cuts for Rich Geezers—And How to Fight Back (eBook)
The Impoverishment of the American College Student (eBook)
Sold My Soul for a Student Loan (eBook)
Quit Like a Millionaire: No Gimmicks, Luck, or Trust Fund Required (eBook)
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