The Effects of Student Loan Debt on First Time Homebuyers

On Oct 17, 2018

New Jersey Realtors Issues Mobilization Fund recently released a study, prepared by Monmouth University, which evaluated the effects of student loan debt on first-time homebuyers in the state.

In New Jersey, 61 percent of college graduates carry student loan debt, with the median balance sitting at $18,633. Rising student loan debt is a result of many factors: reduced government funding for higher education, rising tuition, increased college enrollment and loose lending standards. Despite the rising costs, a college degree still serves as the bottom rung on the ladder to middle-class success. Combined with already high New Jersey real estate taxes, it’s no wonder homeownership has declined in the past two decades.

In 2018, new regulations were added to mortgage selling guides that indicated student loan debts in deferment or forbearance must be included in applicants’ debt-to-income ratios. If these guides had been in place for 2017, 18 percent of first-time buyers who carried student loan debt would have had their debt-to-income ratios raised high enough to potentially risk not qualifying for their mortgage.

“Student loan debt is often a large hurdle first-time homebuyers must overcome in order to become homeowners,” said 2018 NJ Realtors President Christian Schlueter. “We’re glad the direct correlation between this debt burden and homeownership has been established through this study and that we are able to suggest common sense policy solutions to implement as we continue to promote the American Dream of homeownership to everyone in the great state of New Jersey.”

The study recommends several public policy initiatives that could help reduce the burden and accumulation of student loan debt, making it easier for those with debt to buy their first homes. These suggestions include:

• incentivizing more NJ businesses to offer employees student loan repayment assistance
• educating students about affordable college options in the state; expanding the NJ STARS program
• supporting NJ’s ReFi+ program, which allows debt holders to refinance
• providing a state income tax break for investing in the state’s 529 college savings plan

Read the full report by clicking here.

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