Over the last two decades, student loan debt has drained roughly $1.5T from students and graduates, according to data generated by the Federal Reserve. This amount is projected to increase to $2T by 2022.
Student loan debt is now the second largest debt Americans now hold and, according to realtor.com, this debt could finance the purchase of every single home in the housing market twice. The average borrower owes approximately $34,500 – more than a typical down payment of $26,000 or an average of 10% of a median home priced at $260,000.
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According to Freddie Mac, 51% of Millennials who rent base their housing choices on the amount of their student loan debt payments and 38% of Millennials who are homeowners do the same. Freddie Mac indicates that 42% of renters and 33% of homeowners must cut their spending outputs to cover their housing costs.
Additionally, Freddie Mac indicated that Gen-Z cohorts carry the highest student loan debt in history.
A recent study by Apartment List also sounded the alarm about student loan debt. This study pointed to findings that nearly 50% of all Millennial renters had NO down payment savings in 2019 and at least 12.3% of these Millennial renters have no plans whatsoever to buy a house. Such findings could have serious ramifications for the housing market as well as the overall national economy since housing is a good chunk of the overall economy.
Mike Calhoun, president of the non-profit Center for Responsible Lending, sounded the alarm to the student loan woes in a recent National Public Radio (NPR) article. In this article, Calhoun wrote that “there is little or no thought given as to whether or not students can repay their loans…” just as there was little or no thought as to whether or not borrowers could repay their subprime mortgage obligations.
Calhoun wrote, “Once again, there is a mix-match between the debt and the borrower’s income, their ability to pay. This time around it’s the government making the vast majority of the loans and this has effectively turned the Department of Education into the county’s largest consumer lender.”
Even though the overall makeup and consequences of student loan issues and the subprime market crisis are different, the results are beginning to look the same.
Thanks to HousingWire’s Alcynna Lloyd for source data.