The homeownership rate for individuals between 24 and 32 years old in 2005 has declined 9 percent overall in the last decade, from 45 percent to 36 percent, with slightly more than 20 percent of that decline attributed to rising student debt.
The new report is part of a series of educational studies that the Federal Reserve plans to release.
“Our objective is to share insights and provide context for the complex economic and financial issues that affect individuals, communities and the broader economy,” said Eric Belsky, director of the Federal Reserve Board’s division of consumer and community affairs.
Over the past decade, student debt in the country has more than doubled, ballooning to about $1.5 trillion. The average student loan debt per capita for individuals aged 24-32 has risen from about $5,000 in 2005 to $10,000 in 2014.
In a number of surveys, young people commonly cite student debt as the main reason they can’t buy a home, but the study found that, while it’s part of the problem, it’s not the central issue.
Another caveat to consider, according to the study: underwriting conditions have changed in the past decade.
“The model used to develop these estimates was built using data for student loan borrowers who were between 24 and 32 years old in 2005, so a large fraction had made their home-buying decisions before 2008, when credit was relatively easier to obtain,” the study states. “Following the crisis, loan underwriting may have become more sensitive to student loan debt, increasing its importance in explaining declining homeownership rates.”
Higher student debt early in life also negatively impacts credit rating in the long run, according to the study. The study finds that, with all else equal, higher student debt causes borrowers to be more likely to default on their loan payments, making it harder to qualify for a mortgage later.
Student debt is also influencing migration patterns, according to the study. Researchers have found that individuals with student debt are less likely to remain in rural areas. Only 52 percent of rural borrowers remain in rural areas six years after entering the Equifax/Federal Reserve Bank of New York Consumer Credit Panel, versus 66 percent of non-borrowers.
“Researchers have also found that individuals in rural areas are less likely to have college degrees and are more likely to be unemployed,” the study says. “The loss of college-educated young people from rural areas – commonly called ‘rural brain drain’ – could have important effects on the economic vitality of these rural communities and raises questions about what rural policymakers should do to reverse this trend.”