Carrying student loan debt is making it more difficult for many young professionals to qualify for a mortgage. Recent college graduates with student loan debt who want to own a home will need to earn about one-third more annually — or $8,969 more — than those who are debt-free, according to new research by the real estate data firm RealtyTrac.
“To overcome the additional debt from student loans, indebted college graduates need to make more income than college graduates without student loans to be able to afford a home,” says Daren Blomquist, a vice president at RealtyTrac. For its analysis, RealtyTrac factored in the median home price for each state and county and calculated the minimum amount of income needed to qualify for a loan to purchase a home at that price.
RealtyTrac found that graduates with student loans who are earning the median U.S. household income can afford to make the monthly payments on a median-priced home in 96 percent of the 494 county markets it analyzed.
But many graduates with student loans are saddled with high debts and are struggling to break ahead.
The average graduate in 2014 carried $33,000 in debt, an amount that has tripled over the last 20 years, according to Edvisors.com, a network of websites about planning and paying for college. The average starting salary for an employee holding a bachelor’s degree is around $45,000.
“The average student loan debt varies from state to state, and somewhat counterintuitively, some of the most expensive states for housing also have the lowest average student loan debt,” Blomquist says. For example, while California has one of the lowest levels of student loan debt, it boasts some of the highest home prices in the nation.
In some cases, college grads with student loan debts are having to earn a lot more money than their debt-free counterparts if they want to buy a home. According to RealtyTrac’s analysis, the following states are where recent graduates with student loans need to make even more income to match the purchasing power of students without loans:
- Connecticut: 58%
- Rhode Island: 56%
- Michigan: 55%
- Ohio: 52%
- Pennsylvania: 49%
Student loan debt is a pressing hurdle for graduates not only in purchasing a home but also in building wealth over the long term. For example, households headed by young, college-educated adult without any student debt have about seven times the typical net worth ($64,700) than households headed by young, college-educated adults with student debt ($8,700), according to data from the Pew Research Center. About a quarter of households headed by an adult under 40 has student debt, a record high, according to Pew.
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Source: Market Watch/ Wall Street Journal 08/29/2014