August 17, 2015
With the cost of college outpacing inflation for several decades, it’s no secret that student loan debt is at a record high; yet, contrary to popular belief, student loan debt has not substantially prevented young adults from buying a home according to a recent Dartmouth – University of Wisconsin-Madison study. The downward trend in home ownership by young adults may be explained instead, by the Great Recession and the delayed transition into the social roles of adulthood, such as getting married and having children.
Led by Jason N. Houle, assistant professor of sociology at Dartmouth College and Lawrence M. Berger, director of the Institute for Research on Poverty and professor and doctoral program chair in the School of Social Work at the University of Wisconsin-Madison, the study’s findings were recently published by Third Way.
“The public, media and policy makers have long assumed that student loan debt is holding back the housing recovery by preventing young people from buying homes. The thought was that young people’s credit was ruined, or they simply didn’t want to take on any additional debt with their student loans. The problem is that there’s no real evidence to support these claims,” said Jason N. Houle at Dartmouth.
The media narrative regarding the slowdown of the housing market among Millennials has often focused on the rising costs of education, where young people have no other choice than to finance their postsecondary education resulting in a decline in home buying among young adults since 2006; however, these two trends may not reveal a causal relationship.
By examining the relationship between student loan debt and home ownership, Houle and Berger present two counter narratives: the Great Recession and the structural changes in the transition to adulthood.
With data from the National Longitudinal Survey of Youth 1997, the study found that there is a .8 percentage point reduction in the probability of home ownership associated with a $10,000 increase in student loan debt. Additional analyses revealed that this association was driven by differences between pre-existing differences between debtors and non-debtors. However, they found no evidence for a “dose-response” association between debt and home ownership. That is, someone with $5,000 in debt was equally likely to own a home than somebody with $30,000 in debt.
As such, the study found no evidence statistically supporting an association between student loan debt and mortgage amount or home equity, and thus, challenges the myth that student loan debt may be shattering young adults’ ability today to achieve the American Dream by owning a home.
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Last Updated: 9/9/15