How Accelerating Student Loan Debt Could Block Millions From Homeownership


According to Zillow Reports, half of renters and 39% of homebuyers put off buying a new home due to their student debt. Many potential homebuyers, particularly homebuyers of color, find themselves with burdening debt-to-income (DTI) ratios which disqualify them from even applying for a mortgage. The DTI ratio measures what percentage of a consumer’s income goes towards paying off debt. The rule of thumb for a safe DTI is to keep it under the 36% mark. To qualify for an FHA loan, however, a consumer must have a DTI of 31% or lower. For a conventional loan, the acceptable DTI rate is 28% or lower. To put this into perspective, the average monthly income in California is around $5,000.  If a person’s monthly expenses come out to be $1,500, that means their DTI will be 30%. When adding a payment plan for outstanding debt to this equation, this math may look a little different for those who have student loans.

Households that have a lower than average monthly income, particularly Black and Latinx households, have even lower chances of buying a home with student loan debt.  According to Zillow Reports, more than two-thirds (68.7%) of Black households and a large portion of Latinx households (52.6%) spend more than 28% of their income on housing alone. With these financial burdens, these borrowers will be disqualified from the majority of mortgage loans.

Overall, millennial and Gen Z college graduates are having a harder time becoming homeowners as they try to pay off student debt. As the costs of tuition bypass average salaries in the U.S, the prime years for home buying is being pushed back. Younger U.S citizens may be purchasing their firsts homes a lot later than what was previously conceived as normal.

Trevon Martin // CIRB Journalism Intern