Student loan debt holds back growth for professionals and the market
As cumulative student debt in the United States exceeds $ 1.6 trillion, diligent investors should consider the impact this will have on the economy – now and in the long term – and how we’ll help students and young professionals navigate the path to homeownership.
Rising tuition fees in public and private schools are contributing to the growing student debt crisis, putting the brakes on homeownership for Millennials and Gen Z. Tight housing budgets, negative impacts On credit scores and rising debt-to-income ratios (DTIs) make it difficult for new professionals and college graduates to buy a home and fully participate as consumers in our economy.
While the proposed solutions to the student debt crisis are far from ideal, there is an emerging opportunity in multi-family real estate markets to provide affordable housing and develop properties that create value for tenants, operators. and investors.
Look at the numbers
Even if you don’t pay off a student loan, you can understand the burden that school debt places on the younger generations. Some Millennials and Gen Xers are still paying off student loans from decades ago. As student loans become the second class household debt, an entire generation faces setbacks on their way to homeownership.
Among those who have taken out student loans, the average household student debt in the United States exceeds $ 47,000. While many graduate students have loans in excess of this figure, average debt levels negatively impact DTI ratios, credit scores, and housing budgets for most young borrowers.
People With Sizable Student Debt Seem To Gravitate To Fast-Growing Markets, Federal Student Loans Analysis The data shows. Texas, Florida, New York and California dominate the student debt heat maps: California leads with $ 135.2 billion, followed by Texas with $ 108.2 billion.
Over 80% of non-owners report their debt prevents them from buying a house. For young professionals who do manage to buy, their choices are limited by tight budgets and less than perfect credit.
The Federal Reserve has reported that some 400,000 borrowers are feeling the weight of student debt; among young people, homeownership rates fell by 25% from 2005 to 2014. The level of debt also has a negative impact on the formation of marriages, families and small businesses, which are all driving forces. housing market and economy. In related research conducted by Zillow, 39% of buyers and half of renters said that student debt had influenced their choice to delay the purchase of a home.
The rising cost of education – amplified by a factor of four over the past three decades – and the lack of comparative wage growth contributes more to the overall debt that young professionals must absorb to meet living, medical and transportation costs.
Student debt and the rising cost of living are fueling the increase in defaults. With a national default rate more than 10%, the negative credit events associated with student loans are more than enough to prevent large numbers of young graduates and young professionals from becoming entrepreneurs and homeowners. Meanwhile, tuition fees continue to rise at twice the rate of inflation.
What can we do about it?
Some politicians have offers legislation to cancel existing debt and explore lower and no-cost higher education. Additional strategies for dealing with the crisis include tax breaks for borrowers, tight regulation of private educational institutions, and more involved financial education and counseling for students and graduates. The Law on Aid, Relief and Economic Security (CARES) against the coronavirus suspend loan repayment and accrued interest until September 30 for funds guaranteed by the federal government.
A growing multifamily market
Student loan debt has a lot of negative and unfortunate effects on young professionals, but there is a definite advantage to the real estate market. As home buying becomes less accessible to young people, demand for affordable multi-family housing increases.
A January 2020 CBRE report analyzed the impact of rising student debt on the residential housing market. According to Bisnow, the report projects abundant demand for multi-family development in suburban markets. Affordable multi-family options provide better housing solutions in suburban areas than single-family homes. They also align more closely with the budgets of millennials and leveraged zoomers.
Make the most of it
Student debt is a problem that offers no optimal or immediate solution. For most, given the exorbitant cost of higher education, funding education spending is a necessity. This inevitably affects the affordability of homeownership for young professionals.
Multi-family developers and operators actively strive to provide safe, attractive and profitable housing for younger people as they strive to pay off student loans and finally buy homes or condos.
Historically, multi-family dwellings have been a relatively stable asset class. It will likely continue to provide passive income and stable and reliable returns to investors. Follow the financial development and migration trends of the younger generations to find lucrative investment opportunities.