Student Debt Weighs on Graduates Seeking Homeownership

Student loans are a rising epidemic. Using debt to obtain a degree can be beneficial if done properly, but a weak job market and stagnant incomes are weighing on graduates that aspire for homeownership.

Bitcoin may be the only thing rising faster than college price-tags. The average price of college tuition increases 8 percent a year, meaning the cost of tuition doubles every nine years. This outpaces almost every other kind of inflation that is widely tracked.

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Students are more likely than ever to take out a loan to pay for college. In 2005, consumers in the United States with at least one open student loan on record had an average student debt load of $17,233, according to a study conducted by FICO. However, this debt load increased 58 percent to $27,253 last year. In comparison, all other debt categories combined only grew 4.3 percent.

The latest Federal Reserve numbers show that total student loans outstanding nearly tripled over the past decade and now equals roughly $1 trillion, exceeding total credit-card debt. In fact, mortgages are the only debt outstanding that is greater than student loans. Those seeking to obtain a mortgage to purchase a home are feeling the weight of the increasing liabilities…

Before the financial crisis, first-time home buyers accounted for more than 40 percent of home purchases. However, they accounted for only 32.9 percent in December, representing a four-year low, according to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey. Since then, the figure has climbed higher to 34.5 percent, but given the rising amount of student loans, it is too early to tell if the move is sustainable.

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“First-time home buyers are the wildcard in the upcoming spring-summer home buying season,” says Thomas Popik, research director for Campbell Surveys. “We see strong first-time homebuyer traffic, but it’s still not clear that the traffic will translate into increased purchases, because first-time home buyers are dependent on low-down-payment financing, such as FHA mortgages, and announced FHA program changes will take effect this spring.”

The younger generation, which is more likely to be first-time home buyers, are also seeing troubling rises in the delinquency rates of student loans. The Federal Reserve data show that 35 percent of people under 30 years old who have student loans are at least 90 days late on payments, compared to only 26 percent in 2008. Meanwhile, the central bank reported last year that only 9 percent of 29- to 34-year-olds received a mortgage for the first time between 2009 and 2011, compared to 17 percent a decade earlier.

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