Impact of Student Loans on Home Ownership

In Paying for College on May 26, 2016

A new study from the Federal Reserve, On the Effect of Student Loans on Access to Homeownership, finds that “a 10 percent increase in student debt causes a 1 to 2 percentage point drop in the homeownership rate for student loan borrowers during the first five years after exiting school.” This compares with a 0.1 percentage point decline for controls and is consistent with a 3-month delay in home ownership.

The study assumes degree attainment as a baseline from which to compare the impact of student loan debt on home ownership. Nevertheless, the counterfactual – that student loan borrowers might not have been able to afford home ownership had they avoided student loans by not going to college – remains valid despite this study.

The study also found that the likelihood of home ownership increases with and is dominated by the number of years since exiting school. The study does not, however, address the impact of student loan debt on home ownership past the 5-year window.

The study also does not fully eliminate the potential for confounding factors that contribute both to an increase in student loan debt and a decline in home ownership.

The Federal Reserve study was based on a nationally-representative sample of people who were age 23 to 31 in 2004 and cover the period from 1997 to 2010.

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