A significant percentage of Millennials are facing the crush of significant student debt. While they’ve been able to further their educations, the amount of student debt they borrowed brings other challenges. High on the list of these challenges is the inability of many Millennials to purchase a home earlier in life. Millennials are finding themselves having to purchase a home at a later time than generally was the case with prior generations.
A Look at the Millennial Student Debt Load
Before we look at some of the specifics associated with Millennials being forced to put off buying a home, let’s take a look at the amount of student debt in America. The facts associated with the student loan debt load carried by Millennials is stunning.
As of the beginning of 2019, student loan debt of people between the ages of 19 to 29 has reached an astronomical $1 trillion. Keep in mind that this age group includes both Millennials and Generation Z, the generation following Millennials. Considering all debt carried by Americans, student loan debt is the second most significant debt maintained by U.S. adults. Home mortgages still represent the largest debt category for Americans as of the start of 2019. The average Millennial has a student loan payment of $393 per month.
The total amount of outstanding student loan debt as of the beginning of 2019 is $1.46 trillion. Millennials and Generation Z carry the lion’s share of this type of debt since they’re the last 2 generations old enough to attend college. All this debt wouldn’t be possible unless the cost of higher education skyrocketed – and it did.
Forgoing Discretionary Spending — Including Home Buying
The average amount a Millennial is paying for a student loan is similar to a car payment. Because such a significant chunk is being eaten out of a monthly budget to address a student loan obligation, a majority of Millennials are now calling a purchase of a , a “discretionary purchase”. Buying a home is not the only decision Millennials are delaying. They are also putting off marriage and starting families – the societal impact of all this debt spreads wide, indeed.
Not Qualifying for a Home Mortgage Loan
If they are lucky enough to afford buying a home, many find that they can’t qualify for a home mortgage because their debt to income ratio is too high. This issue is compounded for a notable number of Millennials who’ve experienced other financial issues because, well, life happens.
For example, in order to make ends meet, more than a few Millennials have taken to liberally using credit cards. Robbing Peter to Pay Paul may assist them in getting bills paid each month, but it doesn’t help your credit score. A good many Millennials not only have significant student loan debt but also have high credit card balances, the combination of which cause obtaining a home mortgage loan to approach impossibility.
Inability to Make a Down Payment
Another reason why significant student loan debt is keeping Millennials out of the housing market is an inability on their part to come up with money for a down payment. Since the real estate market collapse that commenced in 2008 and carried forward for several years, low or no down payment home mortgage loans are far less commonplace. There are some options for first-time homebuyers and individuals in some other categories, including veterans. Nonetheless, when it comes to a traditional home mortgage loan in this day and age, a person interested in buying a residence is looking at putting about 20 percent down.
Even a moderately priced home of $200,000 neeeds a $40,000 down payment. Being able to somehow slice the required down payment in half (borrowning from friends and family) still leaves a Millennial with having to come up with $20,000, which can be a herculean task for many people of this generation considering their other financial obligations, including student loan debt.
There continues to be some debate on Capitol Hill in D.C. about developing programs that provide some type of relief for young people with significant student loan debt. Recognizing that there is an ongoing debate, there certainly is no consensus among Members of Congress, let alone the Administration, when it comes to addressing the student loan debt load carried by Millennials and others. With no solution imminent, student loan debt is likely to continue to be an impediment to Millennials who desire to purchase a home.