Rising student debt will impact future housing demand

Bad news for homeowners from the California Association of REALTORS. (H/T Captain Capitalism)


At May’s midyear legislative meetings held by the National Association of Realtors in Washington, DC, a panel of experts in a session titled “Shifting Demographics and Housing Choice: A Whole New World?” discussed future housing market demand and trends to keep in mind as we think about the future of housing in the U.S.

The biggest takeaway was that baby boomers will increasingly contribute to housing supply as they age, yet echo boomers are in a difficult position to absorb the inventory. The echo boomers, also called Millennials, are those currently ages 17 to 31, and account for 62 million people. And although future housing demand highly dependents on different rates of household formation among Echo Boomers, this generation is in a precarious position.

In addition to having seen the worst housing downturn, these younger buyers have been hit hard by the recession. Faced with an uncertain job market, no real income growth, tighter mortgage lending rules, and mounting student and credit card debt, it is no surprise that some of them do not put priority on homeownership.

The concern over student debt is particularly alarming. According to a number of recent research studies, college seniors who graduated with student loans each owed an average of $25,250, up significantly from an average of $12,750 in 1996. Parents have accumulated student debt as well, $34,000 on average. The aggregate amount of student loan debt in the U.S. is over $1 trillion currently. The pace at which debt is mounting adds to the concern. Between March 31, of this year and 2011, student loan debt rose by $64 billion. However, over the same period, all other forms of household debt fell by $383 billion. Put another way, since the peak in household debt in the third quarter of 2008, student loan debt has increased by $293 billion, while other forms of debt fell by $1.53 trillion.

The rise in student debt is attributable to rising cost of education. Since 1978, the cost of tuition in the U.S. has increased more than 900 percent, 650 points above inflation. Between1990 and 2010 alone, tuition rose by 116 percent while the median household incomes inched a mere 2.1 percent.

The libertarian Cato Institute knows what the problem is (see my bold below) and they know how to fix it too.


The real answer is for the federal government to get out of the higher education subsidy business altogether, as a Cato essay argues.

The following are some key points from the essay:

  • The effect of subsidy programs, in part, is to impose taxes on blue collar workers—who have not attended college—to pay for the tuition of future white-collar professionals. Why should the government subsidize future high earners at the expense of average working people?
  • Federal student aid programs transfer wealth from taxpayers to academic institutions. That’s because the rise in student subsidies over the decades appears to have fueled inflation in education costs. Tuition and other college costs have soared as subsidies have risen. College cost inflation induced by federal aid probably hurts low-income families—the people that federal aid was supposed to target—more than others.
  • Federal aid has probably helped increase student enrollment, but many of those additional students may not have been ready, or suited, for college. This is evidenced by the rising shares of college students who require remedial work, and the fact that institutions have lowered their standards to adapt to the rise in second-rate students.
  • Increasing top-down control and subsidization of higher education from Washington is creating a threat to the strength of the American system. As we have seen in K-12 education, the growth in federal subsidies is usually accompanied by calls for more oversight, micromanagement, and rising levels of red tape imposed by Washington.
  • Federal student loan and grant programs have been subject to waste and fraud for decades. The Pell grant program (which SAFRA would enlarge) costs taxpayers hundreds of millions of dollars per year in fraud. Another ongoing problem is the high default rate on student loan programs.

Will the student debt problem be fixed through privatization? Not while Obama is in office. The universities are dominated by secular leftists – they are the ones who benefit from these rising tuition costs. Obama isn’t going to do a thing to stop them from getting your money through subsidies, otherwise he would lose lots of campaign donations!

In the meantime, the best policy is to make sure that you do your degree in a STEM field (science, technology, engineering or math). Non-STEM degrees, according to Captain Capitalism, are not recommended.

3 thoughts on “Rising student debt will impact future housing demand”

  1. I got my master’s degree in biology because it’s actually a useful degree. Someone needs to tell some of these college students that degrees in cultural studies or other politically-correct fields are totally useless. They won’t get you a job. You would be better off to just throw your money away and save yourself 4 or more years of your life.

    I graduated (just 3 years ago) with absolutely no debt. No student loans and no credit card debt. I lived at home, worked part-time, and didn’t go to the most prestigious school. I bought a used car for $3200 that had good gas mileage and would get me back and forth to work and school. I got a job right out of college teaching at a community college. It can be done. If you’re going to have student loans, make sure they are worth it (meaning you have a good chance of getting a good job with your degree that will make it easy to pay the debt back in a few years). Only a few fields are worth student loan debt and even then you should try to work part time to keep from racking up too much debt. The “you can be anything you want to be” garbage is just not true in today’s economy. Be something worthwhile and you’ll have a job. If you get a degree in something worthless, don’t be surprised when no one hires you.


    1. Lindsay, you are 100% right and I wish that Christian parents were telling their children this, too. You did well to get that degree, and I am sure that your family is better off with NO DEBT. This economy is not as favorable to following your heart as it was from 1984 to 2002.


      1. Yes, it has been good for us that I had no debt. The money I saved during my first year of teaching (before I married) we needed this last year when my husband was out of work and I was pregnant with our first child. If I had student loans to pay rather than money in the bank, I don’t know how we would have made it. It’s especially important for young women who want to have the option to stay home with their future children to avoid debt during the college years. There are lots of women who rack up a lot of debt, end up getting married and having kids and wanting to stay home with them. Unfortunately, they often have so much debt that they can’t afford not to work. It takes some wisdom and planning to avoid that dilemma.


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