First-Mortgage Rates Correlate with College Education

on March 20, 2017

A recent report from the Brookings Institution highlights data from the Board of Governors of the Federal Reserve that debunks the myth that student loan debt causes declines in first-mortgage rates. Instead, the report finds that first-mortgage rates correlate with college degree attainment and not with the use of student loans to pay for a college degree.


An April 2013 report from the Federal Reserve Bank of New York (FRBNY), Young Student Loan Borrowers Retreat from Housing and Auto Markets, expressed concern that student loan debt was interfering with household formation. They presented this chart, which shows declines in first-mortgage rates for people at age 30 with and without student loan debt. This research was often cited as evidence of a student debt domino effect, blaming student loans for declines in home ownership, car ownership, entrepreneurship and retirement security.



This comparison is flawed, in that it inappropriately compares people who borrowed to pay for college with people who didn’t have student loans either because they did not go to college or because they did not need to borrow to pay for college. There are also multiple possible reasons why a college student might not borrow: some college students do not borrow because they receive significant grants, some do not borrow because they have wealthy parents, some do not borrow because they attend college part-time, some do not borrow because they work full-time and some do not borrow because they enroll at lower-cost colleges. The FRBNY report was unable to distinguish between people who do and do not have college degrees because it was based on credit bureau reports, which do not contain information about the consumer’s education.


Economists from the Federal Reserve Board of Governors were able to address this limitation of credit bureau data by combining it with college enrollment data from the National Student Clearinghouse. Their report, Student Loans and Homeownership Trends, finds that home ownership rates for people with a college education exceeds home ownership rates for people without a college education, regardless of whether people did or did not use student loans to pay for college.


Moreover, the Federal Reserve Board of Governors report finds that differences in home ownership rates by college graduates who did and did not borrow disappear by age 34, while home ownership rates for those who did not go to college remain significantly lower, as shown by this chart.


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