The Federal Reserve (PDF) has produced an interesting white paper on the relationship between the increasing level of student loans and the relatively low rate of home ownership among Millennials. Here are their two main findings:
To estimate the effect of the increased student loan debt on homeownership, we tracked student loan and mortgage borrowing for individuals who were between 24 and 32 years old in 2005. Using these data, we constructed a model to estimate the impact of increased student loan borrowing on the likelihood of students becoming homeowners during this period of their lives. We found that a $1,000 increase in student loan debt (accumulated during the prime college-going years and measured in 2014 dollars) causes a 1 to 2 percentage point drop in the homeownership rate for student loan borrowers during their late 20s and early 30s. Our estimates suggest that student loan debt can be a meaningful barrier preventing young adults from owning a home.
and
According to our calculations, the increase in student loan debt between 2005 and 2014 reduced the homeownership rate among young adults by 2 percentage points. The homeownership rate for this group fell 9 percentage points over this period (figure 2), implying that a little over 20 percent of the overall decline in homeownership among the young can be attributed to the rise in student loan debt. This represents over 400,000 young individuals who would have owned a home in 2014 had it not been for the rise in debt.
Let’s be very clear about this. Present policy constitutes a transfer from present homeowners, builders, people who work in the construction trades, and retailers to people who work in education and landlords. In addition since educational loans cannot be discharged in bankruptcy it also constitutes a subsidy to bankers and financiers and increasing concentration of wealth.
In my opinion in the absence of policies encouraging the formation of more jobs that require college education that is not a prudent policy, increasing deadweight loss. Policies targeted at incrasing subsidies to higher education have the same flaws.
That all meshes perfectly with the experience of the millennials I know.
I wonder if Dr. Taylor acknowledges he and his buds are the beneficiaries of such policies, all advocated by the political philosophy he supports.