Student Loan Debt Remains a Home Ownership Hurdle For Millennials
Student loan debt has grown rapidly nationwide over the past decade, and continues to trend upward for recent college graduates. At a recent industry meeting for realty professionals, U.S. Department of Housing & Urban Development Secretary Julian Castro addressed the issue as one of the biggest hurdles millennials must overcome if they wish to own their own homes.
At present, more than 42 million Americans have average student loan debt of nearly $30,000. Of these borrowers, more than 7 million are currently in default on their loans, while scores more are barely able to make monthly payments, let alone save for a down payment on a home. Castro believes this is a leading cause of the drop in first-time homeowners over the last several years.
In the short-term, the Federal Housing Administration is attempting to do its part by lowering the allowed amount of deferred student debt on an FHA loan from 2 percent to 1 percent. This means student loans will have less negative impact on a young borrower’s debt-to-income ratio, making it easier to qualify for an FHA-backed home loan.
There are also plans on the table to overhaul the student debt repayment system to provide a long-term solution to the student debt crisis. Two recent legislative proposals address the issue: The “Empowering Students Through Enhanced Financial Counseling Act” would help ensure students are better prepared to handle debt, and the “Access to Fair Financial Options for Repaying Debt Act” would provide additional, flexible repayment options.
In addition to government-sponsored proposals, the National Association of Realtors has convened a working group on student loan debt and its impact on home ownership. They plan to present recommendations to their Board of Directors later this year.
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