The National Association of Realtors Legislative Meetings & Trade Expo has just wrapped up, and one of the most common threads of keynotes and meetings was student debt. The latest conventional wisdom is that student loan debt is preventing younger people from buying homes and in turn, is preventing the housing market and broader economy from achieving a full recovery.
It sure makes for a viable argument: Student loan debt remains a large problem, and it’s grown rapidly in the last decade. According to Rohit Chopra, advisor to the U.S. Department of Education, “Some 42 million Americans have an average of $29,000 in federally backed student loans outstanding. Of these borrowers, 7 million are in default, and each day 3,700 additional borrowers go into default.”
NAR Chief Economist Dr. Lawrence Yun in his latest economic forecast, counters Chopra’s argument saying that “Current homebuyers are the luckiest in generations on mortgage rates.” That said, Yun admits that student debt, inventory, high rents, and increasing home prices (affordability) are “hurdles” that still need to be overcome.
A long and winding road
Not everyone is buying the argument. In a report released last summer, Goldman Sachs argued that “Student debt only has a significant impact on home ownership when the borrower has more than $50,000 in debt or is making payments that exceed 5% of their income.”
Call me silly but how could a $50,000 debt NOT have significant impact on buying a house and incurring more dent?
Jessica Lautz, NAR’s director of member and consumer survey research, points out that “32 percent of home buyers last year were first-time buyers. That’s a 10 percent drop from historical norms.” Thus the debt load, along with affordability challenges that only grow as home prices rise, which play a role in the drop in first-time home buyers.
Is there any way to combat this challenge?
Don’t let anyone ever accuse the government of not trying to help: The FHA is reducing the amount of deferred student debt, from two percent to one percent – that counts against a borrower’s debt-to-income (DTI) ratio.
That means someone with $10,000 in deferred student loan debt would have a $100-per-month repayment obligation in calculating DTI, rather than $200. Hey every dollar counts, right?
So why should the real estate industry focus on student debt? Because the industry plays a part in making debt more manageable, by helping consumers know what they owe and how to pay (which our sharpest readers know is the impetus of TRID).
At #NARLegislative, @SenWarren talks student debt, says Realtors are on the front line to strengthen middle class pic.twitter.com/nYKL86JR6v
— NAR Media Relations (@NARMedia) May 12, 2016
To that end, legislation is in the works to address student debt. Among other bills, the “Empowering Students through Enhanced Financial Counseling Act,” H.R. 3179, would help ensure students are better prepared to handle debt, and the “Access to Fair Financial Options for Repaying Debt Act,” S.1948, would provide more repayment options.
These might not make purchasing a house any easier but at least it helps young consumers know where there money is going. Or already went.