More Younger Americans Have Been Able To Buy Houses Because of the Student Loan Payment Pause

House Ownership.
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The United States is nearing the three year mark of a federal student loan repayment moratorium. While there is still a negative relationship between federal student loan debt and homeownership among young Americans, a new report suggested that the student loan pause has provided more borrowers the chance at owning a home than was previously possible.

As GOBankingRates reported, many student loan borrowers have already benefited by receiving debt forgiveness throughout the payment pause but, according to a Jain Family Institute (JFI) report on “Student Debt and Young America in 2022,” the repayment delay also lessened the burden of debt for many younger Americans. This allowed them to take advantage of the housing boom that coincided with the first few months of the pandemic in 2020.  

The payment pause has effectively changed student loan borrowers’ debt-to-income (DTI) ratio for the better, per the JFI report. Having the same income without debt payments has resulted in more young Americans qualifying for home loans from lenders.

Using 1 million debtors’ information from Experian Credit Solutions, the JFI report found that the American homeownership rate among young borrowers aged 18 to 35 has increased in the past two years — from 17.8% in 2020 to 18.5% in 2021 to 18.9% in 2022.

Additionally, since 2020, homeownership rates for young borrowers have increased in every state except Arizona (which only decreased by 0.2% points). The top five states with the highest borrower homeownership rates for 2022 were Iowa (30.9%), South Dakota (29.3%), North Dakota (28.9%), Nebraska (28.8%) and Minnesota (28.4%). Alaska saw the biggest increase percentage-wise, from 16.7% in 2020 to 22.6% in 2022.

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Speaking to MarketWatch, Eddie Nilaj (co-author of the JFI report) said, “Effective policy responses can lessen the negative impacts of the student-debt crisis. Not just in relieving debt, but enabling home ownership and economic mobility, for example.”

Originally intended to provide relief to 43 million borrowers and potentially help 20 million of those debtors get rid of their loans completely, the fate of President Biden’s student loan forgiveness plan rests in the hands of the Supreme Court, who will decide on the legitimacy of Biden’s program at the end of February. The moratorium has been extended through June 30, 2023, or earlier if appeal litigation is resolved by the Supreme Court.

While the JFI report contended that student debt repayment has improved substantially since 2020, the ability to pay off debt still looms large in the minds of many borrowers. “Comprehensive student debt relief will aid more young borrowers in becoming homeowners and will even narrow the racial homeownerships gap,” the report indicated.

For this to happen, the authors contended that borrowers will need policy changes that allow them to afford payments relative to their incomes — and to make progress in paying down their balances with those payments.

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