It’s Your Fault College Grads

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By: Michael Clayton

Congratulations college graduates, you are to blame for the current lousy housing market. The fact that you are spending a large chunk of your monthly budget paying off your student loan debt has caused serious repercussions in the economy. A new study by home building adviser John Burns Consulting found that student loan payments will cost the housing industry 414,000 transactions this year, or nearly $83 billion dollars. USA today has an article on the study:

Millennials already have to deal with hefty debt from college, an iffy job market, and growing up in an era where MTV no longer plays music videos, but now they’re being blamed for holding back the real estate boom. Home builder adviser John Burns Consulting published details from a study earlier this month concluding that student loan payments will cost the housing industry 414,000 transactions this year that would have totaled $83 billion in sales.

Ouch. The ivory tower is crumbling at the foundation.

It’s been widely assumed that mounting student debt is eating away at this otherwise buoyant housing market recovery. John Burns Consulting’s study — boiled down to a free one-pager for those that aren’t paying customers that got the more thorough report — attempts to quantify the impact.

How did the adviser arrive at $83 billion? Well, we start with the 5.9 million households under the age of 40 that are paying at least $250 in student loan debt, nearly triple the 2.2 million leveraged college grads in the same predicament back in 2005. We then get to the assumption that $250 earmarked for student loan debt every month reduces the buying power of a potential home buyer by $44,000. That’s bad, and it’s naturally worse depending on how much more than $250 a month some of these indebted students have taken on to pay back. That’s less money they can commit to a mortgage. John Burns Consulting offers up that most households paying at least $750 a month in student loan have priced themselves out of the housing market entirely.

Of course the article fails to address the causation for this whole mess: government interference in the student loan market. There is no reason for colleges and universities to spend rationally when they are guaranteed that funding will continue to increase in the form of student loans. Institutions of higher learning all over the country are increasing tuition simply because these student loans are backed by the government, whether they are paid for by the students themselves or they are pushed onto the tax payer via student loan forgiveness plans.

If we are ever going to get the student loan debt issue under control, government is going to have to remove itself from the process so that colleges can learn to become fiscally responsible and obey market signals.