Student Loans and Buying a House

The U.S. homeownership rate fell steadily between 2004 and 2016.^{Note Reference [1]} Even after a 2020 homebuying boom, homeownership is still lower today than it was in the early 2000s.

Several factors could have caused this decline. For one, home prices are rising faster than median incomes.^[4] Some people say student loan debt is also to blame.

After all, student loan debt has more than tripled since 2007.^[5] And having student loans financially impacts borrowers — straining their budgets and delaying big purchases.

This report covers how student loan debt affects buying a house and what it could mean for you.

Student Loans Can Affect Buying a House

In 2019, Federal Reserve researchers looked at how student loan debt impacted homeownership rates from 2005-2014. They found:

• Roughly 20% of the homeownership decline in that period could be attributed to increasing student loan debt.^{Note Reference [2]}
• What's more, a $1,000 increase in student loan debt was associated with a 1-2 percentage point drop in homeownership rates for people in their late 20s and early 30s.^{Note Reference [2]}

In 2021, the National Association of Realtors (NAR) partnered with research company Morning Consult to survey potential and current homeowners who owe or have owed student loan debt in the past two years. Here's what they found:

• 72% of non-homeowners with student debt believed that student loan debt would delay them from buying a home.^{Note Reference [3]}
• Nearly one in five (19%) believed their student debt would delay their home purchase for more than eight years.^{Note Reference [3]}
• Just over half (51%) of non-homeowners said student loan debt was actively delaying them from buying a home.^{Note Reference [3]}
• Half (50%) of current homeowners said their student loan debt delayed their home purchase.^{Note Reference [3]}
• Homebuyers who had difficulty saving for a down payment said that student debt was the biggest reason why.^[6]
• All else being equal, a homebuyer with student loan debt ends up buying a home that's 19% less expensive than what other buyers purchase.^{Note Reference [6]}
• 15% of student debt borrowers said that a mortgage lender had declined their loan due to their debt-to-income ratio.^{Note Reference [3]}
• 16% said they were declined due to a low credit score.^{Note Reference [3]}
• Roughly one in four (23%) homeowners said student loan debt is keeping them from selling their houses because their debt is impacting their credit for a future mortgage.^{Note Reference [3]}

Student Loan Debt and Homeownership by Generation

Out of all the generations, millennials were most likely to say student loans affect whether they can buy a house. This may be because millennials began attending college around the time when student debt was growing at its fastest rate — during the 2007-2009 recession.

According to the NAR report, 60% of millennial non-homeowners said their student loan debt has impacted buying a home, compared to:^{Note Reference [3]}

• 53% of Gen X
• 39% of Gen Z
• 37% of baby boomers

Among homeowners with student loan debt, less than one-third (30%) of millennials said their debt did not delay their home purchase, compared to almost three-quarters (72%) of baby boomers.^{Note Reference [3]}

Source: Morning Consult^{Note Reference [3]}

Source: Morning Consult^{Note Reference [3]}

Student Loan Debt and Homeownership by Race

NAR found that Black non-homeowners (43%) were less likely than white (52%), Latino/a (53%), or borrowers of other races (58%) to say that student loan debt is delaying them from purchasing a home.^{Note Reference [6]}

At the same time, Black student loan borrowers were about half as likely as white student loan borrowers to own homes (26% vs. 50%).^{Note Reference [3]}

Black homeowners reported the highest levels of student loan debt.^[7] These numbers reflect national trends in student loan debt by race, where Black people hold the highest average amounts of debt.

Source: NAR 2022^{Note Reference [7]}

Black potential homeowners also face barriers to homebuying besides student loan debt — from lending discrimination to having less generational wealth.

A 2017 Federal Reserve Bank of St. Louis study found that white college graduates were more likely than Black college graduates to receive financial support or gifts from their parents (e.g., to use toward a down payment). Meanwhile, Black college graduates were more likely than white college grads to send financial support to their parents.^[8]

In 2019, Urban Institute researchers found that Black college graduates had lower homeownership rates than white people without a high school diploma.^[9] The research points to a variety of factors for this gap including age, sex, and marital status of Black residents; income and unemployment; educational attainment; racial segregation; housing affordability; and credit scores.

Can I Buy a House With Student Loan Debt?

Maybe! Mortgage lenders look at multiple factors when considering offering you a home loan. One factor they look at is your debt-to-income ratio (DTI). Your DTI is your total monthly debt payments — including student loans and other debt — divided by your pre-tax monthly income.

The Consumer Financial Protection Bureau recommends that homeowners maintain a DTI under 36% — including their mortgage.^[10] Renters should have a DTI between 15-20%.^{Note Reference [10]}

Some mortgage lenders will accept a DTI of up to 43%.^{Note Reference [10]} But generally, you'll qualify for a larger loan if you have a lower DTI.

How Do Student Loans Affect Credit Scores?

Student loan debt — like any debt — affects your credit score. It can help or hurt your credit score, depending on the circumstances.

On the one hand, you can build your credit score by paying down your student loan debt and making your monthly payments on time, every time.

On the other hand, your credit score could decrease if you can't make monthly student loan payments or if your debt grows faster than you can repay it due to a high interest rate.

Higher student loan debt increases a borrower's chances of missing payments. Loan delinquency, in turn, negatively impacts your credit score, making it more difficult to land a mortgage.^[11]