What the student loan crisis means for renting right now

January 15, 2020 by Ted Bauer

The big picture

You’re going to need to look at this October 2019 headline from Housing Wire: “Total student loan debt could buy every house on the U.S. market … twice.” Just to let it sink in, let’s say that again: the total amount of the current student loan market could go buy every single house available for sale in the U.S. right now, then buy that same house again.

Here’s some of that math:

Divided out, the average student loan borrower owes about $34,500, that’s $8,500 more than the typical down payment of $26,000, or an average 10% of the median home price of $260,000.

The total student loan debt market is about $1.5 trillion dollars right now. For context, if you spent $20 million per day -- which would buy you some nice gated houses -- it would take you 200 years to go bankrupt on $1.5 trillion. It’s a lot of money. 

Also in late 2019, “The Fed” -- always sounds ominous to say that, right? -- said that this student loan debt situation (crisis?) has prevented 400,000 young Americans from buying homes. Here is their math:

Homeownership among people ages 24 to 32 fell 9 percentage points, to 36% from 45%, between 2005 and 2014, the Fed said. While many factors affected the homeowner rate, the Fed said 2 percentage points, or about a fifth, of the decline was tied directly to student debt. That translated into 400,000 borrowers who could have owned a home by 2014 but didn’t because of student loans.

It should also be noted that this $1.5 trillion in student loan debt is a 130% increase over the past decade. Debt, ironically, is a growth industry.

“Delaying life decisions”

This is a common narrative about millennials and Gen Z, typically people born 1982 (older millennials) and later. They delay life decisions. You can see it in “the numbers” too. The average age of first-time buyers over the past couple of decades went from 26 to 34. That’s almost a full decade of not owning a home. The average age for a first-time mother in the U.S. was 21.4 (seems young, actually) in 1972 and is now over 26, with more women than ever before having their first child between 30 and 34. All this makes sense: home prices are increasing twice as fast as income growth is increasing. And while there’s about 21M Baby Boomer homes on the U.S. market, no one seems totally clear who can afford to buy them.

Then consider this, about “delaying life decisions” on the north end: Let’s say you’re a Boomer and bought a home 20-25 years ago for $180,00. (These numbers are made up.) Now you can sell for $700,000, and there’s some whippersnapper in oil and gas who can afford it. Awesome. But can you necessarily afford to get back into a $700,000 neighborhood? Uh oh! So do you age in place, or try to sell to have some assets on hand? This is the other part of the equation.

So what can we do?

Well, the first answer people look towards is politics. While it’s not clear that politicians will actually help the situation -- after all, the 130% rise in student loan debt came with politicians also actively in place and supposedly doing things -- all the current Democratic candidates do have sweeping visions for student loan reform and forgiveness, which could help the housing market buyer-wise. 

One of the real issues, often ignored, is that college has become 2.5x more expensive in the last two-three decades, but there is no evidence that the quality of education has become 2.5x better. Instead, only one -- just one -- university in America spent the 2010s hiring more professors and less admin roles, and that was Iowa State University. (Go Cyclones!) Universities hire more admin roles, and people need to pay for it, and pay for it they will, because the narrative is that there are no jobs available without a college education. That narrative is not completely true, although getting a good, stable, higher-paying job without a college education is very challenging. 

In reality, politics will probably not solve this problem, and universities don’t really have an incentive to solve it either. Instead, what’s going to happen is that in the next 10-20 years, we will see a wealth transfer of between $30 and $68 trillion dollars -- significantly higher than current student loan debt -- between Baby Boomers and millennials. That will, in all likelihood, send the buyer’s housing market into another gear. It’s very possible that the wealth transfer will still benefit the “1 percent,” but $68 trillion (CNBC estimate) is a good chunk of change, and will “fix” things with the housing market and the debt crisis faster than politics will.

The bottom line

While DFW is a growing area, the wages are not in line with cost of goods and services -- so right here, you’re seeing the “delayed life decisions” and “renters for longer” model that you see in a lot of places. It will likely remain that way for 8-10 years, if not longer -- which is why we’re here trying to find you the best apartment possible, and down the road we’ll still be there to find you the best home possible. Move with the market!

PS: as a bonus, if you want to learn about the long-term history of what debt is and how it came about -- and if you have about 1 hour and 21 minutes to spare -- watch anthropologist David Graeber, who literally wrote the book on debt, give a talk to Google employees.

About the Author

Ted Bauer

Ted Bauer is a writer/editor for White Rock Locators focused on as much cool content about the DFW Metroplex rental scene as he can possibly find week-to-week.