One of the pet reasons for explaining the lack of demand for houses among millennials is the presence of ever-escalating student loan debts. The thinking goes that college graduates are so mired in debt that they either cannot afford to buy or are too afraid to run up more debt, and so they stay living with their parents or find cheap places to rent.
Citing a recent panel discussion at the Urban Institute on "Quantifying the Impact of Student Loan Debt on Homeownership," and recently published reports by the Brookings Institute and Jeffrey Thompson, economist at the Board of Governors of the Federal Reserve System, Fleming draws the conclusion that while student loan debt undoubtedly affects financial decisions for those post-college, there is zero empirical evidence to back up the claim that these debts are keeping young people from buying their first homes.
For one thing, Fleming says, the monthly payback amount anyone has to spend on a student loan is based on a percentage of income. This percentage has remained virtually unchanged since the mid-1990s, but then, so have earnings—and members of Generation X didn't shy away from buying houses just because of these obligations.
Student loan debt is at the $1 trillion mark, and there are more outstanding loans than ever. But Fleming says these facts alone do not show that student loan debt is a bigger burden for millennials, much less one that will prevent homeownership.
"Going to college still increases one's earning potential," Fleming said. "For those who had to finance college with loans, the burden of repayment relative to income remains the same today as in the 1990s."
This, he says, begs the question: If young people in the 1990s found a way to buy a home while coping with student loan debt, then "why wouldn't young people today, with the same relative burden, be able to do the same?"
One answer may be the increasing number of young people who do not finish college or take much longer than four years to get through it.
In the past few years, reports by the National Bureau of Economic Research and the National Student Clearinghouse Research Center show that more students are taking six or more years to get through college these days, though the reasons why are not discussed. What's important about this factor, Fleming says, is that the likelihood of homeownership drops among those who do not complete their education.
"Accumulating the debt, but not earning the degree, results in the burden without any benefit," he said. "Research still shows that, on average, getting a college degree results in higher earnings."
Beyond the basic message of "stay in school," Fleming says it's up to colleges to be more proactive in quelling a loan crisis that could lead to an entire section of Americans being unable to afford a home. "The post-secondary educational system and financing policies for a college education need to carefully consider, and potentially attempt to prevent, the burden of college debt without the benefit of a degree," he said.