If you ask most Millennials what their largest barrier to owning a home is, they’ll usually say student debt is the largest hindrance because a mortgage would simply stack on more debt (if they would be approved for the mortgage, in the first place, that is). Ironically, student debt used to be a determining factor as to whether an individual was going to qualify for a home loan up until 2012. For a long time, there was a general consensus that being a student was a signifier of higher education, and therefore a borrower with student debt was more likely to be able to pay back a mortgage because of the high likelihood of a good paying job.
Unfortunately, the Millennial generation is the first, in a long time, to be worse off than the previous generation (the last time this occurred was during the Great Depression). It shouldn’t be surprising that Millennials, many of whom are students, feel that buying a home is out of reach right now with their overwhelming amount of student debt.
The Federal Reserve Bank of New York released a report last year stating that even though the housing and auto industries were experiencing growth, Millennials were straying away from seeking new cars or buying houses. This has been the trend for the past few years now despite the fact that mortgage rates are relatively low and 2015 is being considered as one of the best years to buy a house. Besides having a lot of student debt, many Millennials are also not getting the jobs they thought they would, and often remain unemployed or underemployed (working a low wage job that is better fit for a high school/early college student). According to the New York Fed, the years during and after the recent recession saw good non-college jobs fall and low-wage jobs rise for college graduates.
Fortunately, there are ways Millennials can consolidate their debt, or even have some of it forgiven to get those large student debt under control, and gain the confidence to consider buying a home again. President Obama has approved many government programs to help overburdened students get some financial relief to make things more manageable:
Student Debt Relief – This is a federal program designed to assist current and former students consolidate their debt with income-based payments, plus an opportunity for debt forgiveness for those who qualify
Federal Student Aid – This program is part of the U.S. Department of Education and specializes in public service loan forgiveness for those who qualify
StudentLoans.gov – In addition to providing financial aid, grants, and loans, this government entity can also help you consolidate and manage your student debt
For current graduate students, Evolving Personal Finance lists some considerations you should make before making the move to buy a house while still in school:
How long will you be in your program?
- What is the average length of your program?
- How many dropouts does your program have on average?
- What is your likelihood of your personal success in the program?
*The average recommendation for time spent in the area to make buying a home worth while is five years; this length of time is more ideal for students earning a PhD.
How secure is your position/funding?
- Will your PI (Principle Investigator) for your program be around the whole time?
- How often do other people in your program lose their funding?
- Are you working a job currently or expect too soon?
Will you need roommates during the program?
- If you are unable to afford a mortgage on your own, are you willing to lease rooms to others to help with the payments?
- Do you want to take on the extra responsibility of being a landlord?
Should you be spending the money right now?
- Are the more pressing or better investments you can make at this point in time?
What will you do if you need to leave for some reason (lose funding, emergency, health concerns, job change, etc.?
- Do you have a back-up plan if you have to quit the graduate program?
If you are ever in doubt about your debt, always consult a financial advisor or loan officer on your best course of action to make your student debt more manageable.