Young American consumers with student debt are not taking on mortgages and auto loans as readily these days, according to a new report from the New York Federal Reserve.
Those with student loans have traditionally been those with college degrees and larger incomes, resulting in more major purchases likes homes and cars. For example, back in 2003 roughly 31 percent of 30-year-old home buyers had student debt, compared with about 29 percent who did not have student debt. During the housing boom that gap widened from 2 percent to about 4 percent, but as the Great Recession hit and Americans racked up $966 billion worth of student loans as of 2012, the relationship reversed. In 2012, those with student debt had a homeownership rate almost 2 percent lower than those without it.
“Now, for the first time in at least ten years, thirty-year-olds with no history of student loans are more likely to have home-secured debt than those with a history of student loans,” wrote study authors Meta Brown and Sydnee Caldwell.
And college grads are not jumping into cars loans as frequently either. For young consumers there has typically been a 3-to-4 percent gap separating the auto loan debt for those with student debt and those without. However, as with mortgages, in 2012, those with student debt now make up a smaller portion of the young buyers.
What’s making the difference now? Certainly more college grads are coming out with debt. In 2003 only 25 percent of 25-year-olds had student loan debt, but by 2012 the number had shot up to 43 percent. And balances have grown at an alarming rate as well. In 2003, the average loan balance was $10,649 and as of the end of last year it had jumped 91 percent to $20,326. So students coming out of college are now dealing with problems: a sluggish job market and heavy debt burdens.
The report authors also pointed to a restriction of credit as another driving factor. During the course of the recession those with student debt have started to have lower credit scores than those without.
About Amber Nelson“As a result of tighter underwriting standards, higher delinquency rates, and lower credit scores, consumers with educational debt may have more limited access to housing and auto debt,” Brown and Caldwell wrote, “and, as a result, more limited options in the housing and vehicle markets, despite their comparatively high earning potential.”
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.
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