The Impact of Student Loan Debt and San Diego Millennial Home Buyers

Millennials were encouraged to go to college at all costs. But, now that they are out of school, in the workforce, and ready to become first-time San Diego homeowners those costs are catching up with them. A recent study revealed some interesting information.

Student loans lead to lower home values

The study found that on average millennials who were carrying student loan debt had to take larger mortgages on homes that had lower values. Millennials without student loan debt had a median home value of $8,000 more than their counterparts.

A surprising piece of information is that the percentage of millennials owning a home is not drastically different between those with debt versus those without debt. There is only a 2 percent difference between the two groups.

The real difference comes in the difference in price of their homes. This is believed to be due to the fact that it’s harder to save up for a down payment while paying on student loans.

What are those with student loan debt supposed to do?

Over the past two decades the amount of student loan debt has continued to rise. In recent years, as millennials have started to enter the housing market, home values have risen as well. Lenders are having to deny millennials for their mortgage loans due to the amount of student loan debt they are carrying.

Lenders are advising millennials to work on paying down their student debt. Deferring payments in order to save up money for a down payment could leave you with money in the bank and a denial letter from your lender. This is because the amount of debt you are carrying is a major factor in the decision to approve you for a loan.

It’s important to understand how your repayment options work. There are many ways to reduce the amount of your monthly payment while still starting to pay instead of deferring payment until later.

Mortgage interest rates are no longer at rock bottom and they are expected to climb. This will make it more difficult for those with student loan debt to qualify for a mortgage.

So, what are college students and college graduates supposed to do?

If you are a current college student, make sure you consider if you actually need the full amount of the aid you are offered each semester. It might be nice to have the refunds after your school is paid in order to have some money for living expenses, but think about if you actually need it. That Starbucks coffee might taste good but if you are buying it with money that you are paying interest on, it really isn’t worth it.

It’s also important to finish school out when you take out student loans. You owe the money either way, so if you finish and earn the degree you have a higher chance of a larger income that will help you pay the loans back.

Ignoring your loans won’t make them go away and won’t help your situation. If you have questions talk to a financial planner that specializes in student loans. This can help with devising a financial plan that will help you pay down on your loans and save up for a house.