If you’re at the age when you’ve started thinking about buying a home, the Federal Reserve’s recent analysis about homeownership may put a damper on your plans. The Fed released a new analysis that revealed the national homeownership rate among young adults has decreased by 2% from 2005 to 2014. One reason for this: the hefty cost of student loan debt.
The authors stated that "roughly 20% of the decline in homeownership among young adults can be attributed to their increased student loan debts since 2005," which means more than 400,000 young people would have owned a home in 2014 had it not been for the increase in student loan debt between 2005 and 2014.
While student loan debt wasn’t the sole reason for the drop in homeownership, the Fed analysis found a direct link between student loan debt and the chances of homeownership, stating that a "$1,000 increase in student loan debt ... causes a 1 to 2 percentage point drop in the homeownership rate for student loan borrowers during their late 20s and early 30s."
The analysis also revealed higher student debt levels resulted in borrowers being more likely to default on their student loans, which, in turn, hurt their FICO credit scores and their chances of being able to qualify for a mortgage.
While paying back student loans isn’t easy, borrowers have several types of repayment options available to them:
- Three basic repayment plans: These will allow you to pay off your loans in 10 to 25 years, depending upon how much you can afford to make in monthly payments.
- Five income-driven repayment plans: These will tie your monthly payments to your actual discretionary income to ease the burden of paying off your student debt.
If you’re a medical or legal professional, you may qualify for grants to help you pay off your student loans. Refinancing your student loans allows you to lower your interest rate and monthly payments, and loan consolidation lets you combine your federal student loans into a single loan with one monthly payment.