Millennials – individuals who are currently between the ages of 25 and 41 – are the largest population of current home buyers. However, many are still struggling to purchase a home due to the financial burden student debt.
In fact, for every $1,000 in student loan debt, the national homeownership rate is lowered by 1.8 percentage points for those in their mid-20s who attended a four-year public university, according to a study from the University of Chicago Press Journals. This amounts to about a four-month delay in homeownership.
While 83% of millennials are actively saving for a home, many say that the burden of rent and debts like student loan debt, auto loans, credit card debt and medical debt are holding them back, according to a study from Lombardo Homes.
One way to pay down debt faster or lower your monthly student loan payments is to refinance them in today’s historically low interest rate environment. If you have federal student loans, refinancing may not be your best repayment option since you'd lose benefits like debt forgiveness and income-driven repayment plans. Private student loan borrowers can visit Credible to compare rates from multiple student loan lenders at once.
About 71% of millennials said their current rent is so high that it makes saving up for a home more difficult, according to the Lombardo Homes survey. They also said high levels of debt make saving up harder, too; 51% of millennials have credit card debt, 39% have student loan debt (both private student loans and federal student loans), 29% have auto loans and 17% have medical debt.
It's no surprise that millennials are increasingly in need of financial aid and piling on college loans, as the cost to attend college is rising 800% faster than average wages. To put that in perspective, the cost of attendance for an average four-year degree was about $26,120 per school year in 2016. That made paying for college amount to a total of $104,480.
In 1989, all four years of college cost an average of $26,902. Even after adjusting for inflation, the total cost of attendance was $52,892 for all four years. Real median wages, on the other hand, saw little change. Wages rose from $54,042 to $59,039 between 1989 and 2016, according to the Federal Reserve Bank of St. Louis.
While paying off your loan amount can seem daunting, lowering your interest rate can lower the total amount of interest you pay over the life of the loan and decrease your monthly payments. If you have private loans, visit Credible to see a rates table and compare multiple lenders in minutes and their repayment programs.
The Federal Housing Administration (FHA) recently updated its policies on how student debt is calculated for FHA mortgages. It expects this move to expand access to homeownership for more people, especially student loan borrowers of color, first-time homebuyers, millennials and low-income Americans. While financial aid can benefit those paying for college, it can later be a hinderance for buying a home.
"This change removes an unjust and unjustifiable barrier to homeownership," said Christelle Bamona, Center for Responsible Lending researcher. "The policy extends the opportunity to build generational wealth to more Black and Latino and low-income families as well as families in other communities for whom opportunity has long been denied. We commend the FHA, HUD, and Secretary [Marcia] Fudge for this new and improved policy, and we will continue to work with them on the long road toward housing justice."
Previously, the old FHA calculations looked at 1% of the total student loan debt amount, rather than what a borrower actually pays each month. The new method of calculation can be used by lenders immediately if they choose, but will be mandatory by Aug. 16, 2021. It will now match the way student debt is calculated for Fannie Mae and Freddie Mac loans, VA loans and USDA loans.
While those with federal loans should be a bit more careful, borrowers of private student loans who are interested in refinancing their loan amount can visit Credible to compare repayment options and get prequalified without affecting your credit score.
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