Monday, July 7, 2014 - Article by: Justin Fitzhugh - Nations Lending Corporation -
In the last couple of years the media has attributed a decreased rate of homeownership to the rising levels of student debt. We have seen greater coverage of student protests who express hardship while repaying their debt, and greater occurrences of protests have fueled the argument that student debt is causing a decrease in the rate homeownership in young adults. However, two recent studies concluded that student debt has a small correlation to decreasing homeownership rates. I agree with the studies, and furthermore, given that we have just come out of the great recession, I believe the many protest are an overreaction motivated by the protests against Wall Street. I believe protesters of the so-called student debt crisis are trying to take advantage of the current social mood to avoid their financial responsibilities.
The first study, published by Jason Houle and Lawrence Berger,(1) University of Dartmouth and University of Wisconsin, argue declining rates of homeownership among young adults is a result of structural changes in the economy and in the behavior of young adults. The second study, published by the Brown Center for Education Policy, written by Beth Akers and Matthew M. Chingos,(2) sponsored by the Brookings Institute, argues that increases in student debt is the result of greater consumption of education as well as a greater preference to finance it as form of payment. Both studies lead us to consider that rumors of predatory student lending are overblown and misleading, and present us with data that help us understand the components of current student debt.
Two decades ago, young adults had a greater tendency to purchase a home and acquire a mortgage after college graduation. However, after analyzing homeownership trends by this segment of the population, Houle and Berger found their preference for homeownership had decreased before the great recession. Furthermore, student debt was the only type of debt that increased during the great recession. Coupled, these facts may skew our view of the impact student debt has over current homeownership levels, but after Houle and Berger analyzed individual-level longitudinal data from the National Longitudinal Study of Youth 1997 cohort (NLSY97), they found socioeconomic and ethnic background variables were the primary cause more young adults choose not to acquire debt to finance a home. Individuals who grew up in single parented homes, and who experienced greater education costs, are less likely to buy a home or attain a mortgage; while individuals who grew up in households with both parents, and who experienced cheaper education costs were more likely to own a home and attain mortgages. Individuals who experienced cheaper education costs were better at accessing financial aid resources (grants, scholarships, etc) or received greater financial support from their families.
The Study sponsored by the Brookings Institute found more Americans are consuming graduate degrees. After Akers and Chingos analyzed more than 20 years of data from the Survey of Consumer Finances administered by the Federal Reserve Board, they concluded the average debt of borrowers with graduate degrees quadrupled, from under 10K to more than 40K, and the average debt levels of borrowers with only a bachelors degree increased from 6K to 16K. Meanwhile, the percentage of borrowers with high-to-income ratios decreased.
These studies help us understand decreasing rates of homeownership by young adults and increasing levels of student debt. First, increasing numbers of single parented young adults prefer less financial responsibilities, and second, consumption of education has dramatically increased in the last two decades. It is true that homeownership rates by this segment of the population has decreased, however this change has a greater relationship to social and consumption preference changes than to the student debt levels by themselves.
In the long run, a greater number of educated individuals benefits us all. Evidence shows that individuals with higher education show greater participation in civic life, manage their finances better, and contribute to diverse economic growth. I think the recent student debt protests are but a strategy to avoid or lessen the financial responsibilities post-students face, and I think the use of protests as a strategy was motivated by the recent Occupy Wall Street movement.(3) The Wall Street movement had great media coverage, which resulted in getting the Governments attention. I suspect recent graduates would prefer not to pay for the services they consumed, and may want to leverage the current social mood (post great recession, and weary of banks and creditors). However, if we permit recent graduates not to pay for the education they received, we would devalue our education system, and we would set our society for many negative consequences in the long run. Former students themselves would eventually face a debasement of their education. I agree with the authors of these studies, and I think whatever policies are implemented should be carefully drafted, thoroughly analyzed, and should not be based on the medias biased rumors. Hey, the Government could hire some of our our recent graduates to do study all significant data... lol
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