In a new report that confirms the obvious for many millennials, the Federal Reserve found that rising student debt — and not personal spending habits on things like avocado toast — is a key factor in preventing young people from buying homes, revealing that homeownership among young adults dropped 9 percentage points over the span of nearly 10 years.
The report, published Wednesday, tracked homeownership rates from 2005 to 2014, showing an overall drop of 4 percentage points, from 69 percent in 2005 to 65 percent in 2014. That drop doubles among young adults ages 24 to 32, from 45 percent in 2005 to 36 percent in 2014.
At the same time, average student loan debt among young people has also doubled from about $5,000 in 2005 to $10,000 in 2014. The Fed reported that in the first quarter of 2018, outstanding student debt reached a staggering $1.52 trillion, almost triple the amount from the previous decade.
The Fed said it is likely that more than 20 percent of the overall decrease in homeownership among young people is due to student loan debt. “This represents over 400,000 young individuals who would have owned a home in 2014 had it not been for the rise in debt,” the report stated.
“Our estimates suggest that student loan debt can be a meaningful barrier preventing young adults form owning a home,” the report added, explaining that high student loan debt can lead to a lower credit score, ultimately impacting a person’s ability to qualify for a mortgage. High student loan payments can also adversely affect a person’s ability to save for a down payment on a mortgage.
The Fed report comes as higher education costs continue to increase, with financial aid in the form of grants and tax benefits failing to keep up the pace.
“Now, net prices for full-time students at public four-year institutions have increased for eight straight years, for seven straight years for students at public two-year colleges, and for six straight years for those at private nonprofit colleges and universities,” reported InsideHigherEd in 2017. “So the typical student keeps paying more for college each year.”
The high costs are exacerbated by the Trump administration’s repeated efforts to roll back student protections, from aiming to rescind regulations that hold colleges accountable for saddling students with more debt that they can handle, lowering standards for student loan servicers, and dismantling an Education Department team in charge of investigating for-profit colleges, to name a few.
As student debt continues to rise, many progressive politicians are calling for long-term solutions in financing higher education. A number of Democratic candidates campaigned on college affordability proposals in the lead-up to the 2018 midterm elections. And a bill put forth by Democrats in the summer of 2017 would push states to offer tuition-free community college for two years, expand Pell Grants, protect the Public Service Loan Forgiveness Program, and increase accountability of for-profit colleges. The sponsor of that legislation, Rep. Bobby Scott (D-VA), now serves as chairman of the House Committee on Education and Labor in the 116th Congress.