US student debt hinders home ownership

by Chris Becker

The US Federal Reserve as an interesting report out (unlike the US government, Trump can’t shutdown the Fed! on the impact of student debt on new homeowner rates in the US. Salient because the Coalition wants the education cake and to eat it too. Last year the Senate passed the HECS/HELP adjustments so that students will have to pay back their loans at lower income levels – from $45,000 instead of $52,000 previously, but at the same time want further privatisation and monetisation of tertiary education, going down the road of the barbaric US system.

If you want less home ownership, then go for it, according to the Fed:

The homeownership rate in the United States fell approximately 4 percentage points in the wake of the financial crisis, from a peak of 69 percent in 2005 to 65 percent in 2014. The decline in homeownership was even more pronounced among young adults. Whereas 45 percent of household heads ages 24 to 32 in 2005 owned their own home, just 36 percent did in 2014—a marked 9 percentage point drop.

Outstanding student loan balances have more than doubled in real terms (to about $1.5 trillion) in the last decade, with average real student loan debt per capita for individuals ages 24 to 32 rising from about $5,000 in 2005 to $10,000 in 2014.3 In surveys, young adults commonly report that their student loan debts are preventing them from buying a home.4

We estimate that roughly 20 percent of the decline in homeownership among young adults can be attributed to their increased student loan debts since 2005.

Not only does it have a material impact on actually owning a home (read:getting hitched to a lifetime mortgage), but also on the ability to pay back debts, having a “major adverse effect on their credit scores, thereby impacting their ability to qualify for a mortgage.”

And lowering the HECS/HELP threshold is going to have a material impact on the flexibility with which new Australian homeowners can make those repayments.

Read the full report here (PDF)

Latest posts by Chris Becker (see all)


  1. “thereby impacting their ability to qualify for a mortgage”

    Isn’t this good news? They will only be able to borrow LESS.

    Eventually it should filter through to folks actually doing due diligence on study so they don’t bother with worthless degrees.

    On that, I feel that the govt should force the institutions to underwrite the student loan. If someone from Uni of Wollongong can’t repay the debt incurred from a sociology degree then UoW needs to kick the tin. Without skin in the game universities will continue to offer trash courses that are not worth the cost.

    • Ronin8317MEMBER

      Unfortunately, your suggestion will lead to our universities becoming 90% foreign students and those who can pay upfront,with only a tony number of places available to locals for HECS.

      A more sensible approach is to limit the number of places available using feedback from the industries that hires the graduates. After all, do we need that many people studying law degree?

      • I don’t mind a foreign student if they can really pay upfront. My other suggestions include no working rights for students or their partner / spouse. it is supposed to be an export so that money should come from overseas.

        But I take issue that it would only be small number of hecs places. I did my masters in the USA, and I paid for that 100%, and borrowed more than 100% (including 2 years living costs) from citibank to pay it. My university (admittedly and ivy league with a decent endowment) was on the hook for that loan if I didn’t pay it back. I did pay it back in less than 2 years as I went into investment banking in NY – that’s a different story but the thesis is if that degree is worthwhile you should be able to borrow to pay for it. That is, it should be worth it. Plenty of degrees being pushed out by Aussie institutions are not.

    • People need worthless[0] degrees so they can get past the “must have a degree” filter necessary to find jobs.

      Fix the lack of jobs problem and the worthless degrees will take care of themselves.

      [0] Worthless in the sense of not being particularly important for the job, rather than just not being something you might think is important in general.

      • That filter does not apply to foreigners. 3rd world passport holders come here and claim to have a degree from the 3rd world and they are hired to do the whole gamut of jobs from fruit picker to fruit deliverer to fruit retailer to computer networker at the fruit company.

        Some foreign students here put “I have worked as an accountant in Dubai” on their resume (even if they have not worked as an accountant anywhere) and they are hired instead of Aussies.

        the lack of jobs

        You mean the lack of deporting foreign students so that Stagmal gets hired instead.

      • If a degree increases your earning capacity it isn’t worthless.

        My marketing professor used to say the harvard degree isn’t worth much, the admission slip from harvard (as they are quite selective) is the most valuable thing, it just so happens that most folks admitted to harvard go on to finish their degree.

        Folks will gladly hand over their hard earned (or borrow from a bank at even commercial rates) if the degree is viewed as useful. My proposal would I hope force universities to be a little more circumspect in their offerings, forcing them to critically evaluate what students (& future employers) get out of a degree. The lack of skin in the game (see Nicolas Taleb) is a factor that weakens any system. And it sums up the australian university sector (see above for my comparison with the US system, or the US system as it was when I studied there 15 years ago).

  2. For a generation that enjoyed the highest improvements in the standard of living, the baby boomers have done their utmost to make it worse for younger people. Truly despicable.

    • You are mostly blaming ordinary people who don’t own an investment property, only (at best) a modest house that they bought when they were going cheap, and have had very little say in anything. At the same time, you are giving a free pass to a great many of the politicians and their mega-rich backers, who are guilty as sin, simply because they aren’t baby boomers. Gen X + Gen Y are now in the majority both in Parliament and in the electorate as a whole. Scott Morrison and Bill Shorten both belong to Gen X. If it is all down to the baby boomers, why aren’t we seeing any real reforms, now that the virtuous younger people are in charge? This makes sense from a class perspective, however. The politicians mostly have big property portfolios and the same class interests as their predecessors.

      You can certainly blame most ordinary baby boomers for voting for the major parties, but then you have to blame most people in every other voting age generation, even the 18-30 demographic. Look in the mirror. As a generation, you voted for this.

      Compulsory voting brings out the uninformed, who have just been inundated with advertising for the major parties.

      Neoliberal policies were starting to be introduced around the world when most baby boomers were too young to vote. The “reforms” happened when they did because the people at the top saw a perfect opportunity to claw back the concessions they had to make to ordinary people after the world wars. There were clear problems with stagflation due to oil shocks. There had been major abuses of union power, so there wasn’t a lot of resistance when unions had their teeth pulled and jobs were exported. There were no major wars, so no worries about disgruntled young men coming home with military training. Communism had been discredited, making it easier to convince voters that there was no alternative (TINA). Horror over Nazi atrocities could be exploited to smear anyone objecting to mass migration for any reason as a racist. Hawke and Keating were promising to bring home the bacon. (They were, for the top few percent.)

      • Thanks Tania, the frequent abusive comment s about greedy boomers on this website are really annoying. Your comments are spot on. This is a class issue not a generational issue.

      • We are all generalising.
        Generally I find boomers to be willfully ignorant and committedly selfish.
        It’s the Alan Jones and Ray Hadley boomer demographic I find loathsome.
        Even more galling is the way they rubbish the younger generations (of which I am not a part) whilst judging them from their free -education ivory towers of current tax breaks and entitlements.
        They are, by most measures of taxation contribution versus benefit, a generation of leaners not lifters.

      • So it is OK to smear millions of people because they were born in the wrong years and *some* of them are undoubtedly greedy, ignorant, and selfish, just like every other generation. Why isn’t it OK to smear all black people because some of them are criminals or all Catholics because there are pedophile priests? If the baby boomers are uniquely bad, then why isn’t Parliament fixing the problems they created now that younger people are in charge?

  3. The “unis” in AUS have been a scam for over 15 years – some say since 1989.

    What is the point of funding “unis” if the jobs are given to 457 visa staff anyway? Put a massive tax on every work visa and Aussie graduates will magically get hired!

    You either want foreigners to be hired or you want Aussies to be hired. What we have seen over the last 10 years is, foreigners getting hired at the expense of Aussies.

  4. @Chris Becker:
    – Immigration is a force pushing down wages. And that means that more aussie workers/employees are won’t be able to have a good income. It means that the government has to eat more losses when they wouldn’t lower the threshold.

    • – The fertility rate will drop (more) as well. We saw that in the US as well. But one has to look at it from a broader perspective.
      – You have to keep in mind that, a baby is fairly inexpensive. But as those children grow up they become more and more expensive. The parents of those children have to pay more and more for their children. Think e.g. food, clothing, education etc.
      – Then more and more parents make the decision to stop having (more) children.