More Evidence on the Effect of Student Loans on the Housing Market

Michael Lux Blog, News, Student Loans 4 Comments

In a recent study released by TransUnion, one of the three major credit bureaus, student loan balances have surged over the last decade.  Though this is hardly groundbreaking news, the interesting part about the TransUnion study is how they broke down the data.

Typically, student loan debt analysis is done based upon total debt.  The most commonly reported figure is that Americans owe over one trillion dollars in student loans.  This particular study examined student loans as a percentage of the total outstanding debt.  This information is useful because it allows an apples to apples comparison of student loans to debt such as mortgage and credit card debt.  Another useful aspect of this study is that it looked at data over a 9 year period.  Its interesting to see how debt has changed since 1972, but with so many other changes, it is hard to draw too many conclusions.

On to the Facts…

In 2005 student loans made up 12.9% of 20 to 29 year-olds’ debt.  In less than a decade, that number surged to 36.8%.

Credit cards dropped slightly, falling from 5.1% to 3.8%.

We see the impact on the growth in student debt when looking at mortgages.  In 2005 63.2% of the debt of 20 to 29 year-olds was dedicated to mortgages. Today that number has plummeted to 42.9%.

The Conclusion

In the words of one TransUnion executive, “Our study clearly shows that the rapid rise in student loan debt for younger consumers has occurred while the shares of all other loan types except auto dropped, indicating that student loans may be crowding out most other loan types.  Additionally, younger consumers have found during and soon after the recession that it is more difficult to gain access to credit cards and mortgages, further pushing the decline in those balances.”

Translated: If you owe a boatload on student loans, you will find it very difficult to buy a house.

A Final Thought

This data only skims the surface of the effects of student loans on the housing market.  Student loans make buying a house difficult for borrowers, but they also make things very difficult for cosigners.

Readers: Have you tried to buy a home with student loans?  What was your experience?