ORLANDO, Fla. — Despite being in their prime home-buying years, a majority of millennials with student debt currently don’t own a home – and many believe this debt is the reason why.
Student debt is holding back millennials from financial decisions and personal milestones, such as adequately saving for retirement, changing careers, continuing their education, marrying and having children, according to a recent joint study on millennial student loan debt released by the National Association of Realtors®(NAR) and nonprofit American Student Assistance (ASA)
NAR and ASA’s study found that 20 percent of millennial respondents currently own a home, and that they’re typically carrying a student debt load ($41,200) that surpasses their annual income ($38,800). Most respondents borrowed money to finance their education at a four-year college (79 percent), and slightly over half (51 percent) are repaying a balance of over $40,000.
Among the 80 percent of millennials in the survey who said they do not own a home, 83 percent believe their student loan debt has affected their ability to buy. The median amount of time these millennials expect to be delayed from buying a home is seven years, and overall, 84 percent expect to postpone buying by at least three years.
According to NAR Chief Economist Lawrence Yun, the housing market’s lifecycle is being disrupted by the $1.4 trillion of student debt U.S. households are currently carrying. In addition to softer demand at the entry-level portion of the market, a quarter of current millennial homeowners said their student debt is preventing them from selling their home to buy a new one, either because it’s too expensive to move and upgrade, or because their loans have impacted their credit for a future mortgage.
Yun said, “Millennial homeowners who can’t afford to trade up because of their student debt end up staying put, which slows the turnover in the housing market and exacerbates the low supply levels and affordability pressures for those trying to buy their first home.”
Repaying student debt influencing choices
In addition to postponing a home purchase, the survey found that student debt is forcing millennials to put aside several additional life choices and financial decisions that contribute to the economy and their overall happiness. Eighty-six percent have made sacrifices in their professional career, including taking a second job, remaining in a position in which they were unhappy, or taking one outside their field. Furthermore, more than half say they are delayed in continuing their education and starting a family, and 41 percent would like to marry but are stalling because of their debt.
Even more concerning, according to Yun, is that it appears many millennials are putting saving for retirement on the backburner because of their student debt. Sixty-one percent of respondents at times have not been able to contribute to their retirement, and nearly a third (32 percent) said they were at times able to contribute but with a reduced amount.
“Being unable to adequately save for retirement on top of not experiencing the wealth building benefits of owning a home is an unfortunate situation that could have long-term consequences to the financial well-being of these millennials,” Yun said.
A better understanding of college costs is needed
The financial pressures many millennials with student debt are now experiencing appear to somewhat come from not having a complete understanding of the expenses needed to pay for college. Only one-in-five borrowers indicated in the survey that they understood all of the costs, including tuition, fees and housing.
Jean Eddy, president and CEO at ASA, said: “Student debt is a reality for the majority of students attending colleges and universities across our country. We cannot allow educational debt to hold back whole generations from the financial milestones that underpin the American Dream, like homeownership. The results of this study reinforce the need for solutions that both reduce education debt levels for future students, and enable current borrowers to make that debt manageable, so they don’t have to put the rest of their financial goals on hold.”
About the survey: In April 2017, ASA distributed a 41-question survey co-written with NAR to 92,419 student loan borrowers (ages 22 to 35) who are current in repayment. A total of 2,203 student loan borrowers completed the survey. All information is characteristic of April 2017, with the exception of income data, which is reflective of 2016.