Student loan forgiveness may not be the silver bullet to boost home ownership.


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“The unfortunate truth is that this is unlikely to turn the dials for prospective home buyers.”

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Amid the lobbying for student loan forgiveness, one of the key political issues was that reducing burdensome millennial and Gen Z debt could free up money for home ownership. .

Now that some student loan forgiveness appears to be on track, barring foreclosures in court, housing economists are pinpointing a flood of millennials and Gen Z buyers who weren’t yet on the market. is not expected.

Redfin spokeswoman Allie Brown said, “Unfortunately, this means it’s unlikely to change the dial for future homebuyers.

Biden administration announced in August Plans to reduce federal student loan debt by up to $10,000 For non-Pell grant recipients earning less than $125,000. Recipients of Pell grants (a type of financial aid for undergraduates who demonstrate “exceptional financial need,” according to the Department of Education) are eligible for up to $20,000 on the same income threshold.

The application for this relief has been made public, but the initiative has been temporarily blocked by an appeals court ruling. But even if, or even if, the measures recover, experts say they shouldn’t trigger a surge in home buying by those generational cohorts.

After all, the government has suspended federal student loan payments during the pandemic and has continued to do so. That is, these payments have not been a financial factor for many borrowers over his two years.

“For many people, if their loan is forgiven or their $10,000 loan is forgiven, their monthly budget may not look much different than it does today. [especially] If we hadn’t factored these payments into our current spending,” said Nicole Bachaud, senior economist at Zillow.

Data show that more people are living in rental housing because of the heavy burden of student debt.a 2021 National Real Estate Association Survey 51% of borrowers surveyed indicate that they have postponed or postponed a home purchase due to student loan debt. In the Northeast, the number was much higher (61%).

The debt-to-income ratio greatly affects how lenders determine whether someone qualifies for a mortgage. That ratio of borrowers gives the lender a clue as to how much additional debt the person can take on.

Although Biden’s student loan forgiveness plan, even with the current proposal, falls short of what Massachusetts Democrat Senator Elizabeth Warren and Massachusetts Democrat Rep. Ayanna Pressley wanted ($50,000 maximum). , will be helpful for borrowers with high debt. – Income ratio.

“When you look at overall debt balances and debt-to-income ratios, and how people will be able to take out a mortgage in the future, not having student loan debt will give them a little more wiggle room and a breather. There will be room for potential buyers who are trying to figure out how to qualify for a mortgage,” Bashaw said.

However, it is still too early to determine the exact impact on homeownership rates.

Your credit score determines your mortgage eligibility and interest rate. It’s not clear whether forgiving student loan debt at the $10,000 or $20,000 mark will boost them.

Wiping out a borrower’s debt can wipe out credit lines, so depending on how the numbers are calculated, they could even be reduced.

Will this improve people’s credit scores overall? “Nobody knows the answer,” said Bashaw. “For each person, the answer will be different. …It is definitely not a vehicle that could be a major driver of improved affordability or mortgage readiness.”

Other than reducing monthly loan payments and freeing up cash, it may be too early to speculate how much student loan forgiveness will affect the housing market. , is unlikely to be a by-product of the program, housing experts say.

Zillow does not expect housing prices to fall significantly nationwide due to the influx of people into the market, Bachaud said. As more people leave the sidelines and enter the housing market, there will be upward pressure on prices.

Rather than focus on student loan forgiveness, prospective homebuyers may want to consider other options. Some of the federal agencies that help with loans) have programs to ease the pressure on borrowers with large student loan debt.

These programs benefit especially those whose loan balances could exceed $75,000 because they can be tailored to an individual’s income and put less emphasis on the borrower’s overall student loan debt, Brown said. said. This is more help than a $10,000 loan forgiveness.

“If you introduce [student loan forgiveness] The policy is good, but it doesn’t change the outcome for borrowers who weren’t previously eligible,” she added.

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