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Student Debt Isn’t the Roadblock to Homeownership Many Believe

August 3, 2016 | By

While the burden of student debt is worrisome for many, it may not be the drag on homeownership that some thought.

Total student debt in America has more than tripled in the last decade to more than $1.3 trillion in April, according to data released on July 8 by the Federal Reserve. Meanwhile, the U.S. homeownership rate is near a 48-year low at 63.5 percent, according to the Commerce Department’s report for the first three months of this year.

But a recent study shows that having a college degree increases the likelihood of homeownership, even with student debt.

An analysis of data from Fannie Mae’s National Housing Survey® shows that people with student loans who received a bachelor’s degree, or a higher level of education, are 27 percent more likely to be homeowners than high school graduates who didn’t attend college and have no student loans.

Finding Answers

The Fannie Mae study shows that the widespread burden of student debt is likely to affect the homeownership rates of certain groups of people more than others.

The data for Fannie Mae’s analysis came from the responses of 3,000 consumers in a nationally representative sample during the third quarter of 2015. Fannie Mae conducts a monthly phone survey asking 1,000 respondents over 100 questions on a variety of topics.

“Before we ran this analysis, we knew [student debt] would likely hurt homeownership rate, but we didn’t know to what degree,” Qiang Cai, an economist with Fannie Mae, says.

Those who completed at least a bachelor’s degree without student debt were 43 percent more likely to be homeowners than high school graduates who didn’t attend college and don’t have student debt, according to the research.

Still, while student debt may delay homeownership, it doesn’t eliminate the idea altogether, according to the analysis. The study shows renters ages 25 to 44 with student debt are 28 percent less likely to buy rather than rent their next home compared to those without student loans. That’s controlling for age, income, and marital status. Conversely, respondents who expect to rent their next home are only 7 percent less likely to say they plan to buy eventually than those without student loan debt.

Likelihood of homeownership relative to a high school graduate without student loans

Renters’ long-term aspiration to own a home persists whether or not they have student loans, though student loans do seem to delay the expected timeline for first home purchase, as shown in an analysis of renters aged 25 to 44. Renters with student loans are 28 percent less likely to say they will buy, rather than rent, their next home than those without student loans, when controlling for differences in age, income, and marital status. However, those who expect to rent their next home are only 7 percent less likely to say they plan to buy a home eventually.

This interactive chart presents an analysis of renters aged 25-44. The buttons toggle between renters who will buy a home on their next move and renters who will buy eventually, if not on their next move. Run your cursor over each bar for comparative detail about each cohort. Asterisks indicate statistically significant results.


While graduating debt-free makes owning a home easier, “It’s often not an option,” Sarah Shahdad, a Fannie Mae strategic planning analyst, says. Economists uniformly recognize the importance of a college degree when it comes to unemployment and income levels. Males with a college degree earn $34,969 more a year than men without a college degree, while the gap for women’s income with or without a degree is $23,280, according to an analysis by MIT economist David Autor of Census data from 2012.

Meanwhile, the average cost of tuition and fees of a private four-year college education is $32,410 a year, according to the College Board. For a public four-year college, it’s $3,440 a year for in-state students, not including housing, food, books, and supplies.

Another study about homeownership and student debt by researchers with the Federal Reserve looked at credit reports and data on college attendance from the National Student Clearinghouse. Similar to Fannie Mae’s survey, that study shows there’s a major gap in homeownership between those who do and don’t go to college.

The Importance of Completing a Degree

The group affected most negatively by student debt included those who started college but didn’t complete their bachelor’s degree, the research found. That group was 32 percent less likely to be homeowners than high school graduates who didn’t attend college and therefore didn’t have student loans. Shahdad says it’s striking that a whopping 40 percent of those ages 25 to 44 years old with student debt fall into this category.

“Those who start college and take on student debt, but aren’t able to get their bachelor’s degree are in a tough spot, because they have to shoulder the student debt burden without the additional income benefit that a bachelor’s degree can provide. If more students who enroll in college are able to complete their degree, it may help alleviate some of the pressure from their student loans,” Shahdad says.

More to Learn

Shahdad says further research could be conducted to see the effects of different types of college degrees, as well as additional graduate degrees, such as a master’s or Ph.D., on homeownership likelihood. She also recognizes the need to look at how financial support, such as from family members, could play a role in one’s ability to attend college with lower or no debt and make a down payment on a home.

Another area that could merit additional research is how varying payment burdens affect homeownership rates. The majority of borrowers in the study had monthly student debt repayments that were 10 percent or less of their monthly income.

With the increasing cost of education and changing income levels, Shahdad says, “these results could change in the future.”


Estimates, forecasts, and other views expressed in this article should not be construed as indicating Fannie Mae’s expected results, are based on a number of assumptions and may change without notice. How this information affects Fannie Mae will depend on many factors. Neither Fannie Mae nor its Economic & Strategic Research (ESR) Group guarantees that the information in this article is accurate, current, or suitable for any particular purpose. Changes in the assumptions or underlying information could produce materially different results. The ESR Group’s views expressed in this article speak only as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.






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