Households with student debt of $25,000 to $50,000 are less likely to own their own homes than people with smaller financial burdens, said Goldman Sachs Group Inc.
That amount of debt offsets any positive effect that a college degree has on household income for people 25 to 34 years old, according to research from the New York-based bank. For some potential home buyers, it's better to have no college education and no student-loan burden.
“The share of young households with a large amount of student debt has been rising fast,” Jan Hatzius, chief economist at Goldman, said in
an April 17 report obtained by Newsmax Finance. “The impact of student debt is more pronounced on young individuals.”
The homeownership rate among younger households with student debt of $25,000 to $50,000 was 12 percentage points fewer than the age group's average, according to Goldman.
The portion of households with that amount of debt has grown more than sevenfold in the past several decades.
In the late 1980s and early 1990s, less than 2 percent of younger households had more than $25,000 of student debt, as measured in 2013 dollars, when that portion jumped to more than 15 percent.
“What concerns us is the increasing share of young adults with student debt above $25,000 and the fact that the number of people with large amounts of student debt but no college degree has risen,” according to Goldman. “In addition, borrowers who clearly default on student loans find it very difficult to start afresh.”
The U.S. Bankruptcy Code limits the ability to discharge student debt, possibly leaving people stuck with a lifetime of financial obligations.
Student debt
has jumped in the past 30 years to a record $1.2 trillion, making it the most significant liability after home mortgages, according to data from the Federal Reserve Bank of New York.
In an interesting twist, young households with student debt greater than $50,000 were more likely to own a home. The bank said that greater likelihood may be attributed to people with advanced degrees who earn higher incomes.
Homeownership is greatest among college graduates with little or no student debt, according to the data.
"For those young households with student loans less than $25,000, the negative debt effect is negligible, while a college a degree raises the probability of owning a home significantly," Goldman said.
Housing Demand to Rise
The negative effect on home ownership will subside as the
millennial generation of about 80 million people born between 1980 and 1999 gets older and forms households, Goldman said.
“The sheer size of the millennials who are currently in the 20s and whose housing consumption should increase sharply in the coming years will support aggregate demand,” the bank said. “Going forward, we expect the growth in student loan balances to decelerate. As job prospects brighten, fewer young adults are likely to bide time in school.”
The bank based its analysis on 2013 data in the
Survey of Consumer Finance, which the Federal Reserve publishes every three years.
The jump in student loans is worrisome as the federal government takes over the market for educational borrowing, said
Noah Smith of Bloomberg View.
"The federal government has rapidly taken over almost the entire student-loan market since the crisis," he said in an editorial on April 17. "Federally owned student loans rose from zero in the mid-1990s, to a bit more than $100 billion on the eve of the crisis, to about $850 billion in late 2014."
The government earned $51 billion in interest payments in 2013, reducing any incentive to fix the negative effects of crushing student debt, he said.
"With that kind of money on the table, it’s going to be hard to get the government to take strong action for debt relief," Smith said. "One way to bring that unlucky generation some relief would be to permit student debt to be expunged in bankruptcy."
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