College graduates typically earn more than non-college graduates over their lifetimes, yet the average 30-year-old who earned a bachelor’s degree in 2004 is most likely ineligible today for a home mortgage because of a high debt-to-income ratio.
“Denied? The Impact of Student Debt On the Ability to Buy a Home,” a report released by Young Invincibles, a Washington, D.C.-based organization, concludes that today’s college graduates are worse off financially than previous generations.
“Debtors who graduated in 2004 and start looking for a mortgage to purchase a home (in 2013) — the average age for home purchase is 30 — will face some difficult realities,” the report reads.
Based on economic data pulled from government sources, the authors estimate the typical 30-year-old college graduate looking to buy a home would need to spend about half of his or her monthly income on mortgage, student loan, credit card and car payments. That individual wouldn’t qualify for many home loans, including Federal Housing Administration mortgages, which have lower requirements.
Couples face possible rejection qualifying for a mortgage if even one of them has student debt.
The report shows “how rising student debt may lead to significant economic impacts,” said Rory O’Sullivan, policy director at Young Invincibles. “As education debt grows, it pushes more borrowers out of the housing market, potentially adding another drag to an economy only just emerging from the Great Recession.”
Mortgage lenders want to make sure borrowers don’t already have huge debt burdens relative to their income, so they use debt-to-income ratio to determine who qualifies for a home loan.
A couple who earns $3,000 a month but spends $850 a month on a mortgage, $50 on credit cards and $300 on student debt ($850 + $350 / $3,000) would have a debt-to-income ratio of 40 percent. They would barely meet FHA requirements that cap total debt payments at 41 percent of income, and they would not meet many conventional lender requirements, which usually are higher.
The report does not factor in other important considerations such as credit score or down payment.
This year, total student debt in the U.S. hit $1 trillion. An estimated two-thirds of the Class of 2010 carry an average burden of $25,250, according to the Project on Student Debt at the Institute for College Access & Success.
Young Invincibles was founded in the summer of 2009 by a group of law students at Georgetown University Law Center who saw a need to advocate for issues affecting young Americans.
Contact Tim Grant at tgrant@post-gazette.com. For more stories visit scrippsnews.com.
Leon Ceniceros posted at 4:32 pm on Wed, Aug 29, 2012.
Golly, Gosh and Gee....what can we do to help these poor over-educated but financially inept College and University graduates who signed their names (not yours and not mine)....on the "dotted line".
I know....I know...we can follow our "Messaih's" wishes and email, write or call (or do all three) our Congressperson (P.S.) or Senator asking them to give "student loan amnesty" to all of these graduates.
What's another.... TRILLION DOLLARS......added on to a ....$15 TRILLION DOLLAR DEFICIT.
Think of all the happy students who would be voting for their "MESSIAH"....in gratitude.
az2008 posted at 9:55 pm on Wed, Aug 29, 2012.
Everyone talks about healthcare costs outpacing inflation. Post-secondary education has outpaced healthcare! Schools are paid through government-backed loans. If the student can't earn what they were led to believe, the government collects the debt. The collection can last all the way into retirement, with your Soc. Sec. garnished.
No other debtor can garnish Soc. Sec. Basically we converted retirement insurance into educator payola.
This leaves educators with virtually no skin in the game. They can overhype and over charge for education. They consume the maximum government-guaranteed benefit. And then, when the credentials don't have the expected earning power, the educators have virtually no downside risk. They have the money. The government (aka Society) will act as the collection agency for *decades*, ultimately seizing Social Security benefits which were intended to prevent the individual from becoming a burden on society.
Educators say it's "just a free market. If an individual doesn't want the risk, they can choose not to attend college." It's hardly a "free market" when society guarantees your loans. I.e., if educators stood to loose money when students discover their credentials are worth less than the educators stipulated, maybe educators would be more cautious about who they loan to.
In a free market of "willing buyers and sellers" you don't have society stepping in backing your loans to customers.
chuckles3 posted at 8:18 am on Thu, Aug 30, 2012.
lol. If you are a couple of 30 year-old college grads, both working, and your income is only $3k/month, you made some really bad choices for a field of study.
Or you are part of an Obama economy and working at Home Depot.
What a worthless study, I am sure there is no agenda behind it at all-oh wait there is, read the last sentence of the article.