Is student loan debt causing young adults to retreat from the housing market en masse? No, but it’s having some impact, and the debt burden appears to be hitting black borrowers harder than whites, says a recent paper from researchers Jason Houle of Dartmouth College and Lawrence Berger of the University of Wisconsin-Madison.
The authors look at the relationship between student-loan debt and homeownership for those under age 30. The authors do find an inverse relationship between student loan debt and homeownership, mortgage acquisition and the amount of mortgage debt.
But the overall relationship is modest, they write, providing “limited evidence that rising student loan debt is a major culprit in the decline in homeownership among young adults in the overall population, though it may have a small marginal effect on homeownership rates.”
The huge jump in student debt has become a top focus of economists and policy makers. President Barack Obama recently announced new moves to cut monthly student loan payments for millions of Americans. The degree to which student debt could restrain the economy, and particularly the housing market, remains a subject of intense debate.
Among those with some post-secondary education, Messrs. Houle and Berger find that having $10,000 more in student debt is associated with a 6 percentage point lower probability of homeownership and a 7 percentage point reduced probability of having a mortgage.
One troubling conclusion in the report: To the extent student loan debt is deterring homeownership, the authors find that it is more of a deterrent for blacks than for whites. While the paper finds “no discernible association” between homeownership or mortgage borrowing and student loan debt for whites, having more than $10,000 in student loan debt is associated with an 11 percentage point lower probability of homeownership for blacks and a 9 percentage point lower probability of holding a mortgage for blacks.
Young black adults tend to have higher student loan debt than more affluent, white counterparts, the authors note. This could be one legacy of a broader wealth gap in the U.S. between blacks and whites, and young adults from disadvantaged households could be “doubly disadvantaged” due to higher student debt, the authors note.
The conclusion is particularly alarming because the sample showed already low rates of homeownership and mortgage borrowing among young blacks. The broader concern, they write, is the possibility “that student loan debt could contribute to black-white wealth inequalities in wealth in the 21st century, at least among the college educated.”
The authors conducted a separate analysis that showed a weaker relationship between homeownership rates and student loan debt, though it found a somewhat larger and significant relationship between mortgage borrowing and student-loan debt.
That shouldn’t be a huge surprise. Borrowers with more student loan debt may have to take out smaller mortgages, all things equal. The study, first presented last fall a conference by the Association for Public Policy Analysis and Management, finds that every additional 1,000 in student loan debt was associated with $146 less in mortgage debt.
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20 June 2014 | 2:33 pm – Source: blogs.wsj.com