Student debt is a rising national issue in the United States. The total amount of student loan debt exceeded $1.6 trillion in 2019 and has had widespread economic impacts on the country over the last few decades. In fact, some presidential candidates support the overall cancellation of student loan debt, and the issue is increasingly hard to ignore. However, one major effect that may be slightly unexpected is that student loan debt has hampered the housing market in the United States.
According to two reports published by the Federal Reserve in January 2019, homeownership for adults aged 24 to 32 decreased 9% in the years 2005 through 2014. Today, it is at just 36%. And why is this happening? You guessed it: the burden of student loan debt. The Fed estimated that 2 percentage points of the 9% decline can be attributed to student debt. In other words, 400,000 people could have purchased a house in the decade studied but didn’t because of their debt.
We’re hearing this from Millennials themselves, as well. According to this survey of 600 Millennials, 64.3% cited debt as a reason they would delay purchasing a home. Many Millennials are living with their parents or with roommates for longer periods, in order to save up enough money for a down payment on a home. The cost of living is higher than ever, and wages have been stagnant for years in the U.S.
Now, how does this apply to Minnesotans? Well, despite the fact that this is a nationwide problem, Minnesota has one of the highest proportions of students with debt in the country. The linked study analyzed various metrics around student loan indebtedness, including average student debt, and student debt as share of income. Overall, it ranks as the 6th state in the country with the worst student loan burden among its population.
In Minnesota, what this actually ends up looking like is a lot of young people with poor credit. The Fed pointed out that the likelihood of default is high with so much student loan debt, which then impacts individuals’ credit scores, and makes it difficult for them to obtain a mortgage. In the same survey linked above, 19.5% of Millennials reported being concerned about having bad credit and getting approved for a mortgage.
With the most in-demand jobs in the state barely paying enough to live here, it’s important that we address this problem on its face. Many affordable housing initiatives have sprung up in Minnesota recently. A state House committee recently approved $500 million to subsidize various low-cost housing options across Minnesota.
Hopefully, this move toward more affordable housing will provide the young people of Minnesota a much-needed boost toward homeownership.