Student loan debt has become a significant barrier to home ownership in the United States, as borrowers imperil their finances simply trying to get through college or professional school.
About 45 million Americans have student debt, and the average borrower owes more than $30,000, according to Student Loan Hero data cited by CNBC. More than 80 percent of young adults ages 22 to 35 with student debt who haven't bought a house blame education loans, according to the National Association of Realtors.
"Student loan debt holders do want to own a home, that's part of their American dream," said Jessica Lautz, managing director of survey research at the association. "It's just really hard to get there right now."
About 20 percent of people with student debt who apply for a mortgage are denied because they have high debt in relation to their incomes, according to the NAR.
"The mortgage officer wants to see that your overall expenditures on housing and debt — including student loans and car payments — is not more than 36 percent of your income," Doug Amis, a certified financial planner at Cardinal Retirement Planning in Cary, North Carolina, told CNBC. "That's really going to limit things if you're only making $50,000 a year."
Getting Worse
Students who borrow more money for college than they’re able to pay back have multiplied to crisis levels – and the future is about to get much worse, especially for black debtors, according to an analysis by the Brookings Institution.
Nearly 40 percent of people with education debt may default on those loans by 2023, according to the think tank’s analysis of Department of Education data. Brookings studied past trends for default rates and projected them over the next five years.
The data indicate that most African-American students who borrow money to attend a for-profit college are putting themselves on the road to eventual default, especially if they didn’t earn a bachelor’s degree. Sixty-seven percent of black dropouts who ever attended a for-profit school are likely to default within 12 years of entering college, Brookings estimated.
Student debt can’t be expunged by filing for bankruptcy, making the loans particularly onerous. Several studies have shown that student debt has forced the millennial generation to delay financial commitments like buying a home or starting a family, a trend that weighed on the broader economy.
“Debt and default among black or African-American college students is at crisis levels, and even a bachelor’s degree is no guarantee of security: black BA [bachelor's degree] graduates default at five times the rate of white BA graduates (21 percent versus 4 percent), and are more likely to default than white dropouts,” Brookings said.
Would You Rather...?
Half the Millennials shouldering student loan debt are so desperate to shed the load they would give up voting in the next two presidential cycles to even the balance sheet, a survey showed.
In the Credible survey, however, only 13 percent would give up texting for a year to be debt-free.
Here are the highlights of what respondents said they would be willing to give up for debt forgiveness:
- 49.8 percent said they would give up their right to vote in the next two presidential elections.
- 43.6 percent were willing to give up services like Uber or Lyft.
- 42.4 percent would also give up traveling outside of the country for five years.
- 27 percent said they would be willing to move in with their parents for five years.
- 13.2 percent would give up texting and any mobile messaging equivalent for a year.
- 8.2 percent said they would prefer to just keep on paying down the debt.
According to the Department of Education, 42.3 million Americans are paying back $1.33 trillion in federal student loan debt, and lenders are collecting another $64 billion in private student loans.
A Federal Reserve survey estimates the median student loan debt balance at $17,000, with monthly payments of $222.
The survey of 500 respondents was conducted Sept. 7-8; no margin of polling error was reported.
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