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May 25, 2016

Diplomas or Student Loan Debt? Weighing the Impact on Future Home Owners

By Nathan Walldorf, ABR, GREEN, GRI, SFR, e-Pro

President, Greater Chattanooga Association of Realtors

When GCAR leadership was in Washington, DC for the National Association of Realtors Legislative Conference, we heard from Senator Elizabeth Warren, who asked Realtors to get behind a bill to provide relief to those burdened with student loan debt.

Warren noted that businesses and property owners are allowed to refinance their debt, while those burdened with student loan debt do not have that option. Warren seeks passage of “The Bank on Students Emergency Loan Refinancing Act. If passed, the Act would allow student loan debt to be refinanced. Thus, the repayment of such debt would be more manageable.

Warren shared the following data:

  • Some $1.3 trillion in student loans are outstanding.
  • Since student loans are federally back, the government is making $60 billion a year in profits off of them, as they are federally backed
  • About 40 million Americans currently make monthly payments on student loans.
  • Each year another million college graduates join the ranks over those repaying student loans.
  • The typical student graduates with $25,000 to $50,000 in debt, which creates a burden as they’re trying to enter the job market, buy a home, and get their lives started.

Regarding these statistics, Warren commented, “That’s money that could have been a down payment on a house or monthly payments that could have gone to mortgage payments.”

Realtors most definitely are engaged in the conversations to address this growing burden of student loan debt. Yet, it’s important to note that those without student loan debt are not immune to the burdens of owning a home. For a starter home, the typical college graduate will need to save for approximately five years to have the monies for a 20 percent down payment. And for those recent graduates saddled with student loans, it will take them about 10 years to put away the same amount. But for those without a college degree, the wait could be more than 15 years.

The next generation of home owners is weighing carefully the merits of a diploma versus debt. Not all mortgage loans require a 20 percent down payment, so that could reduce the waiting for those in all categories.

In a recent study by Apartment List, it was reported that “those without college degrees tend to have lower incomes (college grads make about $22,600 more than non-grads), but those without degrees also tend to get less help with down payments from family and friends.” The study also showed that “college graduates without student debt tend to get more than $8,000 of assistance] with loans [from family or friends. College graduates with student loans expect to get nearly $4,000. But those without a college degree tend to receive just over $2,000.”

As Realtors, we strongly believe education is key to thriving communities and the financial health of our country. As Senator Warren observed, “Everything [Realtors] do ultimately ties to these core economic issues. Getting involved in this student loan battle… is a place where [Realtors] can make a huge difference.”