19 Apr Dorm Days Are Over
A few decades ago, the value of a college degree seemed to increase as the price of attaining one did the same. Unfortunately for many contemporary young adults, this trajectory hasn’t maintained course. The cost of higher education continues to increase but attaining a degree doesn’t guarantee a stable, livable income. As young, aspiring homebuyers are beginning to learn, the debilitating amount of debt that comes with pursuing a college degree makes purchasing a home an increasingly difficult goal to reach.
The debt that many college graduates carry has a ripple effect on every other aspect of their financial health. The inability to save, invest in non-emergency purchases, or afford the upfront costs of homeownership are just a few effects of student loan debt. According to a study conducted by the Federal Reserve, increased student loan debt since 2005 was the catalyst for a 20 percent decline in homeownership among young adults. Even just an increase of $1,000 in student loan debt has resulted in a decline in homeownership rates.
As the number of home owners goes down, renters increase. Though the long-term costs of renting often add up to much more than a monthly mortgage payment, the lower barrier to entry makes rentals a more viable option for indebted consumers. Some prospects who want to buy homes now are finding that because of their student loan debt, they don’t qualify for a mortgage. Most loan programs factor monthly student loan payments into eligibility status, meaning many people won’t qualify until they’ve made a significant dent in their debt.
According to some financial experts, the best bet for college students and aspiring homebuyers is to practice responsible borrowing. That means calculating the accumulated debt for each loan taken out and mapping out a plan to make the necessary payments. For those who have already graduated, putting your additional funds towards your student loan debt is key. Applying for deferment programs may also enable potential buyers to save more on the front-end and allow for more time to find a viable, long-term source of income.