If you’ve tried to buy a house in the last few years, you may have noticed that the minimum credit score to qualify for a mortgage loan has gone up. That increase has caused a 2% decline in the number of new mortgages since the 2008 economic downturn, even though current mortgage rates as of December 2016 were below the historical norms. Minimum credit scores aren’t the only thing affecting home ownership rates, however; student loans are also causing the new mortgage rate to drop, according to reports by the Board of the Federal Reserve.
One report, outlining a government study on the effect of minimum credit scores on new mortgage originations, points out that the scores specifically affect “those living in middle-income or moderately black communities.” A second study done in 2016 reported that in the 23-32 age demographic—historically the age when people buy their first home—student loan debt adversely affected their ability to not only pay a mortgage, but even get qualified for one to begin with.
According to the Federal Reserve study, a 10% increase in student loan debt due to tuition increases causes a 1-2% drop in ownership for students in the first five years after they graduate college. During the time when they should be getting a job, establishing themselves in their field, and possibly purchasing their first home, some students are finding that their increased student loan debt is making that more difficult.
As the loans go unpaid, the interest and fees mount—and soon graduates find their credit score affected—possibly dropping below the new minimum scores and creating a financial downward spiral that can be tough to get out of.
Total student loan debt has doubled in the last 10 years, from $450 billion to over $1.3 trillion; the average amount owed by individual borrowers is up as well, from $19,000 to $27,000. Homeowner rates in the key graduate demographic has decreased by 9%, while overall home ownership only decreased 5% for the rest of the population.
Some believe that the difficulty in getting a job after graduation is due to an enrollment decrease in technical majors like sciences, math and engineering—called STEM—while enrollment in more ‘soft’ majors such as Gender Studies, Fine Arts, Literature, and other humanities are rising. CNN found that those students who are getting employed and making enough money to pay off their loans and purchase a home majored in fields like construction, nursing, and engineering. Liberal arts majors, conversely, have a 5.8% unemployment rate, with a median wage of only $32,000 a year.
The message here is that the student loan issue is affecting far more than just education. The answer for some college-bound seniors may be to major in a field that’s paying well and hiring at a high rate. For others, it may just be to hope for the best once they graduate.