While the U.S. homeownership rate has neared a half-century low, student debt is not the cause, according to a new Evidence Speaks report by Brookings Nonresident Senior Fellow and University of Michigan Economics Professor Susan Dynarskiy.
In “The Haves and Have-Nots in Homeownership: It’s Education, Not Student Debt,” Dynarski debunks the theory espoused by leading economic thinkers such as Larry Summers and Joseph Stiglitz that high levels of student debt have created a drag on the housing market and that thus, policymakers ought to ease loan burdens. Her findings suggest that it is the college degree and its earnings premium over no-degree that helps build assets like a home.
Using Federal Reserve data comparing those with no college, those with college but no student debt, and those with college and student debt, Dynarski notes that the main division between the homeownership “haves” and “have-nots” is their education level — not their debt.
Before the Great Recession, she finds that 35 percent of young people with a college education and no student debt owned a home, compared to only 23 percent of those without a college education. In the aftermath of the housing market collapse (by 2010), 26 percent of those with a college education (and no student debt) owned a home, compared to 17 percent of those without a college education.
People in the youngest group with no college degree are more likely to own a home at an earlier age than those who went to college and accrued student debt because they have been working since high school and settled down earlier, she points out, whereas their college-educated counterparts delay entering the labor force for college. However, the college-educated catch up fast, and overtake the no-college group in homeownership by age 27. By age 35, the gap in homeownership between those with and without a college education is about 14 percentage points.
There is a difference between those who borrow for college versus those who graduate debt-free: the borrowers have a slower start to homeownership, which is due to the fact that loan payments add to the monthly debt ratio that determines eligibility for a mortgage, she writes. By the time a borrower finishes paying off his/her student loans (typically in their 30s), the homeownership rates of the two college-educated groups are statistically indistinguishable, she writes.
Dynarski notes that those without a college education have been getting hammered for decades: the typical undergraduate BA borrower has a debt of $30,000 and owes $350 a month, or $4,200 a year, which is dwarfed by the large earnings gap between those with and without a college education — men with a BA earn $35,000 more per year than those without, while for women, the gap is $25,000.
“The college-educated—even those with student debt—are winners in our economy,” she concludes.
Brookings’ Evidence Speaksis a weekly series of reports and notes by a standing panel of distinguished researchers with a commitment to elevating the role of methodologically rigorous research in the formation of education and social policy.