Your Choice: A House or a College Degree

A housing industry adviser last week pointed out to clients — banks, builders, manufacturers and investors — that student loan debt has become so huge, nationally, that it could be interfering with the housing recovery.

College graduates owe on average $25,000 for outstanding student loans, says John Burns Real Estate Consulting associate Rick Palacios Jr.

Palacios wrote a blog post, "skyrocketing student loan debt will delay homeownership." "Student loan debt now totals $865 billion, which is greater than all credit card debt outstanding, as well as all other types of household debt except for mortgages!" he says.

Young Americans are, by default, choosing college, it appears. But it's unlikely that many will really perceive the choice they made until years later.

College-educated workers do earn more than workers without college degrees. But, on average, incomes of Americans under 44 have, at best, only held steady (after inflation) in 20 years. It takes a lot of earning power to pay off massive loans and save a down payment.

Palacios writes, "Today's 36.8% homeownership rate for 25 to 29 year olds is at its lowest level since 1999, and homeownership for 30 to 34 year olds is at its lowest rate in 17 years."

School debt tyranny
A future buyer already saddled with a big monthly payment is limited in what he or she can pay for housing — or anything else.

The stress is visible at Wesabe, a budgeting and spending site, where many hundreds of comments document the struggle to repay college loans.

Palacios continues:

Even more troubling is the rise in debts associated with for-profit college and trade schools, whose revenues come primarily from debt available through Federal government programs. The debt load is so high, and the job outlook so bleak, that student loan default rates have almost doubled. With the economy little improved since 2009 (two-year lag on data), default rates are bound to rise further.

Six million 25- to 34-year-olds ("a prized demographic for the housing sector," points out Palacios) have moved back with parents. That's a 26% increase since 2007.

The New York Times, in a story on student debt, also notes that default rates are rising, as are proportions of new students taking on debt: '"In the coming years, a lot of people will still be paying off their student loans when it's time for their kids to go to college,' said Mark Kantrowitz, the publisher of and, who has compiled the estimates of student debt, including federal and private loans."

The Times adds:
"If you have a lot of people finishing or leaving school with a lot of debt, their choices may be very different than the generation before them," said Lauren Asher, president of the Institute for College Access and Success. "Things like buying a home, starting a family, starting a business, saving for their own kids' education may not be options for people who are paying off a lot of student debt."

A government program lets "low-earning student borrowers … get out of debt, with income-based repayment that forgives remaining federal student debt for those who pay 15 percent of their income for 25 years — or 10 years, if they work in public service," says the Times. For details see The College Cost Reduction and Access Act and

Even so, 10% of income devoted to loans may prevent someone from qualifying for a home, says Palacio.

The anonymous blogger Dr. Housing Bubble writes, in :"Canceling out a generation of future homebuyers because of massive student debt":

In 1980 a median priced home in California would purchase 330 years of a UC education.

Today it is down to roughly 20 and student loan debt is creating a new class of indentured citizens.

The post inspired 76 comments:

Writes "Michael D." (who financed his education "through scholarships, help from parents, working summers to save money and going to an inexpensive public school"):

I think a college education is absolutely essential these days, just like I think buying a house makes sense in a normal market. But education at any cost, and housing at today's prices just doesn't make sense. I think these student loans are really going to start having an impact on housing in the coming years. People are paying the same prices for housing or more than in previous years, and the student loans have removed the wiggle room from their budgets. It's a recipe for disaster whenever the most minor of road bumps comes along.

"I don't know anyone, myself included, that had the forethought to conduct a cost/benefit analysis before deciding on furthering their education," says another reader, "David F."

"Serf ceorl" shares this from the trenches:

I recently had a child and my 970 sq ft apartment is getting cramped. My wife and I would like to buy a home but my student loan payments are roughly $490 a month and hers are $425 (although she's prepaying a lot of principal). My home purchasing power has just been reduced by roughly $170,000. So if I wanted to buy a $500,000 house (which is just an updated house in my area) I can now only afford $330,000 (which buys far far less house). Moreover, given the roughly $1,000 a month student loan payments (And daycare, car insurance, etc) it is extremely difficult to save a down payment to buy a house.


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