Student Loan Debt Limits First-Time Homebuyers


While signs continue to point toward economic recovery, many Americans still are dealing with the aftermath of the crisis when it comes to maintaining and repairing credit reports, dealing with debt collection issues, and trying to secure new loans.  Some borrowers, however, might be more likely than others to find themselves unable to obtain a mortgage in the current climate, even if they have always made timely payments and have stayed on top of their debts.  In short, according to a recent report in the Wall Street Journal’s Market Watch, student loan debts are “stopping first-timers from buying homes.”  And for many Illinois residents, these are high debts that are tough to eradicate.
As you may know, student loan debts are among the only debts that cannot be discharged in bankruptcy. If you are looking for ways to discharge other current debts you may possess, speaking with one of our Illinois consumer lawyers can help you find a path towards relief.
The Rising Student Loan Crisis and Real Estate Implications
A recent article in the Washington Post made clear that the massive student loan debt carried by Americans “threatens to undermine the housing recovery’s momentum by discouraging, or even blocking, a generation of potential buyers from purchasing their first homes.”
Generally speaking, first-time homebuyers are often considered “the bedrock of the housing market,” but with the increasing problem of student loan debt, first-timers aren’t “stepping up to fill the void. For instance, over the last year, first-time buyers have only made up about one-third of the total home purchases across the country, which is strikingly low based on housing market statistics.  Why aren’t first-time buyers buying?  According to the article, housing experts suspect that one of the major problems is student loan debt.  Specifically, student loan debt has just about tripled over the last ten years, and college graduates aren’t making as much money out of school.  As a result, “many young adults can no longer save for a down payment or qualify for a mortgage.”
Student Loan Debt the Worse Kind of Consumer Debt?
Is the quickly accumulating American student loan debt preventing housing market recovery?  Or worse, is the inability of first-time buyers (with substantial student loan debt) to secure a mortgage impeding economic recovery in general?  According to David H. Stevens, the chief executive of the Mortgage Bankers Association, “student debt trumps all other consumer debt.”  What does this mean, exactly?  In short, student loan debt has “an extraordinary dampening effect on young people's’ ability to borrow for a home,” which in turn “impacts the housing market and the economy at large.”
New federal rules for mortgage lenders could make this problem even larger. According to the Washington Post, federal rules that took effect in January 2013 “grant mortgage lenders broad legal protections as long as they do not approve loans for prospective buyers whose total monthly debt exceeds 43 percent of their monthly gross income.”  The goal here is to protect borrowers from abusive lending practices, but the rules could backfire for reliable would-be borrowers who are carrying significant student loan debt.
Right now, the numbers regarding borrowers under the age of 30 who owe more than $50,000 in student loan debt have climbed to about 10 percent.  If these would-be mortgage borrowers continue to “sit on the sidelines,” as Chris Herbert, the research director at Harvard University’s Joint Center for Housing Studies described it, we may see the effects in the housing market.
If you have questions about consumer debt or bankruptcy options, you should contact an experienced Chicago consumer protection lawyer today.
See Related Blog Posts:
Bankruptcy Filing Numbers Drop, But Financial Struggles Continue

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