Student debt thins millennial budgets for home buying

More than a third of renters looking to buy carry student loans, which puts almost half the housing market out of their reach

A new graduate and her family park in front of the University of Illinois Alma Mater last May. (One Illinois/Ted Cox)

A new graduate and her family park in front of the University of Illinois Alma Mater last May. (One Illinois/Ted Cox)

By Ted Cox

Student debt has left millennials hamstrung in their pursuit of home ownership, according to a new report released by a national realty website.

Zillow released a new Housing Aspirations Report last week finding that more than a third of U.S. renters looking to buy their own homes are carrying student debt, with the consequence that it puts almost half of the houses on the market out of their price range.

According to Zillow, the average monthly payment for student loans among people thinking of home ownership is $388. On average, that pushes down the maximum affordable price for a home to about $270,000, while the same person without student loans could afford a $360,000 house.

The study states that just over half of the homes on the market come in under $270,000, 52.3 percent, while upping the budget to $360,000 makes almost two-thirds available, 66.4 percent.

On average, student loans cut the budget for prospective home buyers by $92,400.

In the Chicago market, things are slightly better for both groups, with the average maximum home price for someone carrying student loans set at $320,000, covering 59 percent of the inventory, while someone without student loans could afford a $413,000 home, covering about 72 percent of the housing market.

“Higher education pays off when it comes to lifetime earnings and the long-term odds of homeownership, but carrying any kind of debt limits how much home buyers can afford," said Zillow Senior Economist Aaron Terrazas. “For today's generation of young home buyers, who came of age in a period of rapidly rising education costs, student debt payments can delay the pace of down-payment savings and put a dent in their max price point once they do decide to buy.

“With for-sale supply still tightest for the most affordable homes but increasingly available at higher prices, even a small reduction in a buyer's target price point can result in substantially fewer options,” he added.

Zillow cites that student debt is at record levels, topping $1.5 trillion in the third quarter of this year.

Programs intended to address that have been mishandled by the Trump administration. The Illinois Economic Policy Institute put out a report a year ago pointing out that the Public Service Loan Forgiveness Program, a 10-year-old initiative granting loan subsidies to graduates working in the public sector and certain nonprofits, was targeted for cuts by President Trump and his Education Secretary Betsy DeVos.

The issue is personal for ILEPI Policy Director Frank Manzo IV. “I am a full-time worker from the ‘millennial generation’ who finished my college education, including a master’s degree, with six-figure student loan debt,” he said. “I have paid $1,000 or more towards my student loans every month since my grace period ended. This level of student loan debt — which is increasingly common — has prevented me from buying a home in Illinois.

“In conversations with my millennial peers in the Chicago area,” Manzo added, “it is clear to me that high student loan debt is hurting the Illinois economy, hindering the ability of people like me to become homeowners, to spend at local shops, to be entrepreneurial and open our own businesses, and to build wealth through saving and investing.”