Study: Student Loan Debt Impacting Mortgage Market

Posted by Patrick Barnard on October 13, 2014 No Comments
Categories : Required Reading

Americans ages 20 to 29 saw their student loan debt become a much larger percentage of their overall debt during the past decade – from 12.9% in 2005, to 21.1% in 2009, to 36.8% in 2014 – a recent study from TransUnion reveals.

And, although people in this age group are carrying less credit card debt than they have in the past, the drag of student loan debt is negatively impacting their ability to qualify for mortgages.

According to the report, the average student loan balance per consumer with one or more student loan accounts jumped from $17,442 in 2005 to $29,575 in 2014.

Looking just at borrowers ages 20 to 29, the average student loan debt balance increased from $15,853 in 2005 to $25,525 in 2014.

In addition, the percentage of credit-active consumers ages 20 to 29 with a student loan rose from 31% in 2005 to nearly 51% in 2014.

As a result, student loan debt now accounts for a much larger percentage of consumers' overall debt.

Meanwhile, the average mortgage balance and average credit card balance have both declined. Since the start of the recession in 2008, the average mortgage balance per borrower dropped more than 9% – from $166,117 in 2009 to $150,624 in 2014.

The share of overall debt represented by credit cards also declined from 5.1% in 2005 to 3.8% in 2014, according to the report.

Interestingly, the report finds that older Americans (ages 60-plus) are carrying more student loan debt than ever before. That's partly because many of the people aged 50 to 60 who lost their jobs in the recession decided to return to college to get new training. Many of these people, however, had to borrow in order to get their new degrees – which, in turn, left them with additional debt.

The concern is that the increase in student debt as a percentage of overall debt could be preventing many people – particularly younger people – from obtaining a mortgage.

‘The mortgage crisis and recession had a profound impact on the country, with many consumers still feeling the effects today,’ says Charlie Wise, co-author of the study and vice president in TransUnion's Innovative Solutions Group. ‘Interestingly, our study found that the recession has had a lasting impact on two disparate groups – those consumers in their 20s and those ages 60 or higher – though in very different ways.

‘While these groups differ greatly in their borrowing levels and wallet share compositions, we also believe their borrowing and wallet shares were likely impacted by each other,’ Wise continues. ‘With unemployment rates remaining high for a prolonged period during the last six years, 20-somethings likely looked to their parents, grandparents, and other more financially established family and friends for financial support.’

‘Our study clearly shows that the rapid rise in student loan debt for younger consumers has occurred while the shares of all other loan types except auto has dropped, indicating that student loans may be crowding out most other loan types,’ he adds. ‘Additionally, younger consumers have found during and soon after the recession that it is more difficult to gain access to credit cards and mortgages, further pushing the decline in those balances.’

To read the full report, click here.

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