The ongoing student-loan payment pause enacted first during the coronavirus pandemic boosted homeownership rates among young Americans, according to a new report.
Student-loan repayments have been paused since the pandemic first started spreading in March 2020.
The report by Jain Family Institute, a New-York based research organization, found that the pause in monthly repayments allowed borrowers to budget more towards buying a home.
“Benefiting from the student-loan repayment pause, which has eased debt burdens for many, young borrowers were able to participate in the recent housing boom,” the report stated.
The authors of the report used anonymized data from Experian Credit Solutions EXPGY, +0.92%, of one million debtors’ information for each year.
“‘Benefiting from the student-loan repayment pause, which has eased debt burdens for many, young borrowers were able to participate in the recent housing boom.’”
The rate of homeownership of Americans aged between 18 and 35 years of age was 17.8% in 2020.
After the payment pause kicked into effect that year, homeownership increased to 18.5% in 2021, the report found, and 18.9% in 2022.
Homeownership rates of young borrowers rose in 49 states, and in D.C., between 2020 and 2022, the report found.
Arizona was the only state where homeownership was lower.
The authors attributed the boost in homeownership to the government’s freezing of interest on student loan payments since 2020.
“Effective policy responses can lessen the negative impacts of the student-debt crisis,” Eddie Nilaj, co-author of the report, told MarketWatch, “not just in relieving debt, but enabling home ownership and economic mobility, for example.”
Homeownership rates were the highest in more affordable markets.
This includes Iowa, where nearly 31% of young student debtors owned a home, followed by South Dakota and North Dakota, both at roughly 29%.
Homeownership rates among the young continued to be lowest in New Jersey, New York, and D.C. — no surprises there, given how expensive homes are in those states.
The homeownership rate in New Jersey was 15%, and in New York, 12%.
Interestingly, the state that saw the biggest jump in homeownership rates among young buyers was Alaska — from 16.7% rate in 2020 to 22.6% rate in 2022.
Why can more can afford a home now?
A big reason why the student-loan repayment pause helped young Americans afford homes was due to how it changed their debt-to-income ratio.
Prior to the pandemic, JFI explained, banks had limited lending to borrowers with high DTI ratios and low credit scores. Since payments were paused, borrowers no longer made monthly student-debt payments yet maintained the same income, and hence saw their DTI ratio rise. This allowed them to qualify for certain home loans.
“The suspension of repayments for federal student loans and interest accrual in general has been a boon for some young borrowers looking to become homeowners,” the JFI authors stated.
And “comprehensive student-debt relief will aid more young borrowers in becoming homeowners,” they added.
Nilaj added that “the danger of not doing more is that we’ll see a return of the previous trend of persistently increasing debt burdens.”
Meanwhile, the U.S. government recently made sweeping changes to the repayment mechanism in an attempt to lower the burden on debtors dealing with a decades-old system.
Reforms include allowing individuals to not make payments on their student debt until their annual income exceeds $30,500, allowing monthly payments to drop from 10% of a borrowers’ discretionary income to 5%, and setting limits on accrued interest.
Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at [email protected]
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