Rise in Student Loan Debt Accounts for 20% of Homeownership Decline among Young Adults

If student debt had not increased between 2005 and 2014—both in prevalence and in the amount owed—there would be 400,000 additional homeowners in the 24-to-32 age group. This is the finding of a Federal Reserve Board study of the factors behind the steep decline in homeownership among young adults.

The homeownership rate of 24-to-32-year-olds fell from 45 to 36 percent between 2005 and 2014, report the Fed researchers, an 8.8 percentage-point decline. This was much greater than the 3.9 percentage-point decline for the total population. At the same time, the share of the age group that had student debt climbed from 30 to 40 percent, and the average amount owed per capita doubled from $5,000 to $10,000. The researchers calculated how much these increases reduced homeownership, estimating that there would have been 400,000 additional homeowners in the age group if student debt had remained at the 2005 level.

But the increase in student debt accounts for only 2 percentage points of the 8.8 percentage-point decline in the homeownership rate of young adults (20 percent). What accounts for the rest? The Fed researchers suggest that student loan debt affected the credit scores of young adults in the aftermath of the Great Recession. Lower credit scores made it harder for young adults to qualify for a mortgage, resulting in lower rates of homeownership.

Source: Federal Reserve Board, Consumer and Community Context, January 2019, Can Student Loan Debt Explain Low Homeownership Rates for Young Adults? (PDF)