Regulatory Contact(s):Ken Fears
What is the fundamental issue?
New research clearly indicates 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.
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.
Lawmakers in both parties have proposed changes to the student loan program to deal with the large outstanding debt. The question is whether they will enact anything. The best chance may be with riders on fiscal 2019 spending bills. The reauthorization of the Higher Education Act is another possibility, but very unlikely at this point.
Democrats back measures that would cap the burden on borrowers. Republicans are skeptical, saying college graduates earn more than non-graduates and should be able to pay off their loans. But Republicans are willing to simplify the federal loan system and they advocate giving borrowers more clarity about the debt and their ability to pay it back.
Some Members of Congress seem interested in tax changes to assist those paying off student loans. However, it is not presently clear whether these ideas have a path forward in the current legislative landscape.
NAR supports the following bills:
H.R. 1707, the "Bank on Students Emergency Loan Refinancing Act," introduced by Rep. Courtney (D-CT). H.R. 1707 would allow eligible students with loans under the Federal Direct Loan program (Federal Direct Stafford Loan, Federal Direct Unsubsidized Stafford Loann, Federal Direct PLUS Loan, or Federal Direct Consolidation Loan) to refinance their loans down to lower rates under certain circumstances. The bill would also allow student borrowers to refinance their loans into the Federal Direct Loan program.
S. 768, the "Bank on Students Emergency Loan Refinancing Act," introduced by Sen. Warren (D-MA). See H.R. 1707 above.
H.R. 2129, the "Empowering Students Through Enhanced Financial Counseling Act," introduced by Rep. Guthrie (R-KY). H.R. 2129 modifies loan counseling requirements for an institution of higher education that participates in the federal student aid programs. It replaces required entrance counseling with required annual counseling. It also expands the required recipients of such annual counseling to include, in addition to student borrowers, Federal Pell Grant recipients and parent PLUS Loan borrowers. It also expands exit counseling requirements, directs the Department of Education to maintain consumer-tested online counseling, and requests a study of the impact and effectiveness of the counseling and online counseling tool.
S. 1496, the "Empowering Students Through Enhanced Financial Counseling Act," introduced by Sen. Warren (D-VA). See H.R. 2120 above.
S. 2347, the "Student Loan Repayment Acceleration Act," introduced by Sen. Cory Gardner (R-CO). S. 2347 would exclude employer paid student loan payments made up to $10,000 poer year from certain payroll taxes the employee's gross income.
Conventional Financing and Policy Committee
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.
Student Loan Debt’s Impact on Home Ownership
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.”
State of the Nation’s Housing (Joint Center for Housing Studies of Harvard University, 2018)
Student Debt Delaying Millennial Homeownership by 7 Years (National Association of REALTORS®, Sept. 18, 2017)
Student Debt vs. Homeownership (Around the Fed, July 2017) E
“…rising student debt can account for between 11 percent and 35 percent of the decline in homeownership”
Student Loan Debt and Housing Report (National Association of REALTORS®, 2017)
On the Effect of Student Loans on Access to Homeownership (Board of Governors of the Federal Reserve System, Oct. 2016)
From Abstract: “To identify the causal effect of student loans on homeownership, we instrument for the amount of the individual’s student loan debt using changes to the in-state tuition rate at public 4-year colleges in the student’s home state. We find that a 10 percent increase in student loan debt causes a 1 to 2 percentage point drop in the homeownership rate for student loan borrowers during the first five years after exiting school. Validity tests suggest that the results are not confounded by local economic conditions or non-random selection into the estimation sample.”
eBooks & Other Resources
Sold My Soul for a Student Loan (eBook)
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