Student Debt and Home Ownership Rates: Perception and Action

By Patrick Coate, PhD

How much does student debt affect Americans’ chances of owning a home? Recent research gives a wide range of answers to that question. The debt definitely lowers ownership rates, but whether the effect is minor or massive depends on the exact questions asked and how the answers are framed. As I wrote in an AIER article, student debt is a healthy investment on average but can be very harmful to certain people’s economic health. This is reflected in the statistics relating debt and home ownership: debt matters, but some reporting overstates its importance on economic outcomes.

A recent report by the New York Fed shows some basic relationships between education, debt, and home ownership rates. They show differences of only a few percentage points in home ownership rates between college graduates with and without student debt: about 42 percent to 38 percent at age 30. Among those with debt, home ownership differences between those with less than or more than $25,000 in debt were no more than two percentage points. These are much smaller than the differences between college and high school graduates, or even college graduates and those with some college but no degree. People with education and debt, on average, do much better than those with neither.

This seems to contrast with suggestions that student debt is a massive barrier to home ownership, such as this report from last year. The headline figure is that in a survey, 71 percent of non-homeowners with student loan debts “said the burden of those monthly payments was keeping them from buying a home. More than half said it would likely continue do so for more than five years.” At face value, this is impossible to reconcile with the modest home ownership differences found by the New York Fed report.

However, if the survey respondents interpreted the question as meaning debt was one factor among several, then these two studies may be showing two aspects of the same phenomenon. Imagine 100 30-year-old college graduates with student debt and 100 graduates without debt. Thirty-eight of the first group own their homes. If you ask the remaining 62 debtors whether student debt is keeping them from buying a house, the latter report says 44 of them (71 percent of 62) will answer yes. And that’s no surprise: student loans are one more bill to worry about every month, and they may be unwilling or unable to take on a mortgage on top of those loans. However, only 42 of the non-debtors own their homes. One interpretation is that of those 44 worried debtors, only 4 are close enough to the margin that their student debt is really the deciding factor between buying and renting. The effects of debt are fairly small in the aggregate, but the number of people who feel affected is 10 times larger.

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