Student loan debt is a major obstacle for many first-time homebuyers today. Among recent buyers, 37% of first-time purchasers carry student loan debt, typically around $30,000. These debts make it difficult to save for a down payment and often delay the decision to buy a house. Over half of student loan holders say their debt has delayed them from purchasing a home. Since 2005, researchers found that for every $1,000 increase in student loan debt, the homeownership rate for young graduates under 35 dropped by about 1.8%.
First-time buyers with college loans also tend to purchase less expensive homes. One analysis found that first-time homebuyers who have student debt spend about 39% less on their homes than buyers without student loans. Large monthly loan payments mean these buyers qualify for smaller mortgages and have tighter budgets. A big chunk of their income goes toward student debt instead of a housing payment.
Renters with student loans are less likely to become homeowners at all, and when they do, they often build less home equity and wealth than peers without education debt. This shows how student loans can have a long-term impact on financial stability and homeownership rates.
Credit Score Impacts
Having student debt can affect a buyer’s credit and ability to get a mortgage, but the impact is not always straightforward. Paying student loans on time can actually help build a credit history. However, missed payments or loans in default will hurt credit scores and make mortgage approval harder.
Lenders closely watch debt-to-income ratios (DTI) – how much of a person’s monthly income goes to debt payments. High student loan balances can push DTIs above the preferred range (often around 36% for many lenders). If too much of your paycheck is already committed to loans, banks worry you won’t afford a mortgage payment. One major mortgage company, Freddie Mac, generally won’t buy loans from borrowers with DTIs over 45%.
The Pandemic Payment Pause Effect
Student loans were paused during the COVID-19 pandemic, creating some surprising short-term benefits for borrowers’ finances. With payments on hold from March 2020 to late 2023, many borrowers’ credit scores improved. The share of student loan borrowers with subprime (poor) credit dropped from 33% before the pandemic to 24% by August 2022.
Fewer borrowers had other bills in collections as well during this period. This temporary relief gave some buyers a chance to qualify for mortgages that might have been out of reach before. However, now that payments have resumed, many worry about a “credit hit” as budgets tighten and some borrowers struggle to keep up with all their bills.
Policy Changes
Lenders and government agencies have tried to help by adjusting mortgage rules. In 2021 the Federal Housing Administration (FHA) changed how it calculates student loan payments, using a smaller monthly amount (0.5% of the loan balance) when no payment is due. This policy makes it easier for borrowers with student debt to meet DTI requirements and get approved for FHA-insured home loans.
Regional Differences
The impact of student loan debt on homebuying varies widely by region. In some parts of the country, young adults face the double challenge of high education debt and high housing costs. The District of Columbia has the highest average federal student loan debt in the nation at about $54,800 per borrower. About 17% of D.C. residents have student loans – the highest share in the country.
At the same time, home prices in D.C. are well above the national average, making it especially tough for debt-laden graduates to afford a first home. Other states with above-average student debt loads (over $35,000 on average) include Georgia, Maryland, and Virginia, which also have some expensive housing markets. In these areas, the burden of student loans can hit hardest, forcing many young professionals to delay buying or to purchase smaller homes than they would otherwise.
Lower Debt States
By contrast, some states have lower debt levels or special programs to ease the burden. North Dakota is the only state where the average student debt is under $30,000, and places like West Virginia and Oklahoma also have relatively low average debt. These areas often have lower home prices too, which can make the path to homeownership a bit easier.
However, even in lower-cost regions, student loans can still delay buying a home if local incomes are modest. Nationwide data shows that homeownership rates among young borrowers have increased in recent years (rising in 49 states from 2020 to 2022 during the loan payment pause), yet there remains a “negative and significant relationship” between student loan debt and homeownership for young people.
This means that even as more young adults managed to buy homes recently, those with higher student debt were still less likely to own homes compared to those with little or no debt. The student debt crisis is truly a coast-to-coast issue, affecting urban and rural communities alike, though its severity can depend on local economic conditions and policy responses.
Delaying Life Milestones
Heavy student debt doesn’t just affect finances – it also weighs on life plans and personal decisions. Many young adults feel they have to put major milestones on hold because of their loans. In a 2024 national survey, 71% of borrowers said their student debt caused them to delay at least one major life event.
The most commonly delayed step was buying a home, named by 29% of respondents. Others postponed buying a car (28%), moving out of their parents’ home (22%), or even starting their own business (20%). Personal and family milestones are affected too: about 15% of borrowers said they delayed having children because of student loans, and 13% postponed getting married.
Psychological Impact
The psychological pressure of debt can be immense. Young professionals often graduate and enter their 20s or 30s already owing tens of thousands of dollars. This debt can feel like a weight that forces them to alter their life trajectory.
More than half of millennials without a home say student loans have held them back from moving out of a family member’s house. This trend is even more pronounced for Black borrowers – 52% of Black student debt holders reported delaying moving out on their own due to debt.
Living with parents longer or deferring marriage and children might help financially, but it can take an emotional toll. Research shows that those who delay homeownership until later in life miss out on years of home equity growth, which can reduce their overall wealth by retirement. Student debt is influencing not just when people buy homes, but also when they feel ready to take the next steps in their lives.
Federal Support Programs
Policymakers have begun to recognize the link between student debt and the decline in first-time homeownership. Several programs and proposals aim to help borrowers become homeowners despite their education loans.
On the federal level, agencies have adjusted lending rules to be more forgiving toward student debt. The FHA’s 2021 update is one example, lowering the assumed monthly payment for loans in forbearance so that more borrowers qualify for mortgages.
Fannie Mae and Freddie Mac, which back many conventional mortgages, also allow lenders to use actual student loan payments (including income-driven payments that can be very low) when calculating a buyer’s debt load, rather than a flat 1% of the balance as in the past. These changes mean that if someone’s student payment is manageable or temporarily paused, it won’t count as heavily against them when they apply for a home loan.
State and Local Initiatives
State and local governments have been especially creative in bridging the gap for first-time buyers with college debt. Maryland’s SmartBuy program is a leading example. Under the current SmartBuy 3.0 program, eligible buyers with at least $1,000 in student loans can receive a second, zero-interest loan from the state for up to 15% of the home price (capped around $20,000) to pay off their student debt.
If the buyer stays in the home for five years, this student debt loan is completely forgiven. Other places have their own initiatives:
- In Ohio, the city of Newburgh Heights offers a grant paying off up to 50% of student loans (max $50,000) for college-educated individuals who buy a home there and live in it for at least 10–15 years.
- Another Ohio city, Hamilton, will provide up to $15,000 in student loan assistance for young professionals who move to targeted neighborhoods and work locally.
- Kansas is tackling both rural population loss and debt by giving up to $15,000 in student loan repayment to people who move to designated rural counties and stay there for five years.
- In Maine, a tax credit program helps graduates who live and work in the state by refunding some of their student loan payments (up to $2,500 per year) – essentially rewarding them for staying and contributing to the local economy.
Future Legislation
There are also broader proposals on the horizon. One notable idea in Congress is the Transforming Student Debt to Home Equity Act, introduced in 2022. This bill, if passed, would offer first-time homebuyers with student loans special assistance like lower mortgage rates, down payment support, and even discounted prices on certain homes.
The goal is to turn heavy student debt from a barrier into an opportunity – helping renters with college loans transition into homeowners and start building equity. While this act is still just a proposal and not law yet, it signals that lawmakers are looking for bold solutions.
Additionally, the federal government has rolled out a new SAVE income-driven repayment plan in 2023 that lowers monthly student loan bills for many borrowers, which could free up a bit more income for things like saving for a house. Other efforts, such as targeted loan forgiveness programs for certain public servants or ongoing discussions about large-scale debt cancellation, could also indirectly boost homeownership if they reduce borrowers’ overall debt burdens in the coming years.
Recent Trends (2020-2025)
In the past five years, the relationship between student loans and first-time homebuying has been a story of both relief and new challenges. During the pandemic, the government paused federal student loan payments and interest. This gave millions of borrowers a temporary breather – some used the extra cash to pay down other debts or even save for a home.
As a result, a segment of student loan holders were able to buy houses at higher rates than before, and many saw their credit scores improve. Homeownership among young adults with loans ticked up during 2020–2022. However, this bright spot may be fading as the payment pause has ended.
Starting in late 2023, borrowers must again budget for monthly student loan bills, on top of rising mortgage rates and still-high home prices. The squeeze is evident: the share of first-time buyers in the housing market fell to around 26% in 2022, the lowest level in over 40 years. Many experts attribute this decline to affordability challenges – student debt included – that are pushing the age of first-time homeownership higher (the typical first-timer is now 36 years old, up from 33 a few years prior).
Short-Term Outlook (2025-2027)
Looking ahead 2 to 3 years, we may see a mix of headwinds and opportunities. In the short term, student loan payments resuming could slow some potential buyers who now have less money each month to put toward a house. If inflation and rents stay high, it will be even harder for borrowers to save up a down payment while juggling loan payments.
On the other hand, the job market as of 2025 is fairly strong, and wages have been inching up, which might help some young professionals manage their debts better. New federal programs, like the SAVE plan capping payments based on income, might reduce defaults and keep credit scores from sinking, indirectly helping future mortgage prospects.
Long-Term Outlook (2027-2030)
Over the longer term, the influence of student debt on homeownership will depend on several factors. Will college costs and debts continue to rise unchecked? If so, the average borrower in 2030 could owe even more than today, potentially exceeding $50,000 per person on average, which could further delay homeownership for the next generation.
Alternatively, if policies that forgive debt or provide homebuyer assistance expand, many more renters with student loans could make the leap into homeownership. Demographics will play a role too: Millennials (now in their late 20s to early 40s) are aging into prime homebuying years even as they carry student loans, and Gen Z is following with perhaps a more debt-cautious mindset.
By 2030, some analysts project the overall U.S. homeownership rate will hover around 61%, and first-time buyers will still face an uphill battle if tuition and housing prices outpace income growth. But there is cautious optimism that continued attention to this issue will spur more solutions.
The conversation around student loans has shifted – it’s now widely seen as not just an education issue, but a housing and economic one too. This means we can expect ongoing efforts to reduce the drag of student debt, whether through refinancing options, assistance programs, or perhaps more affordable education paths that leave graduates with less debt to begin with.
For now, student loan debt remains a powerful force shaping when and how young Americans achieve the dream of homeownership. The hope is that by 2030, with sustained intervention, that dream will be within closer reach for those who have invested in their education.
References
- Down Payment Trends for First-Time Homebuyers in the US (2020-2024) | Heim Blog
- New Release: JFI’s Annual Student Debt Report, 2022 | Jain Family Institute
- NAR Finds First-Time Homebuyers at Historic Low | RISMedia
- What is the Average Age of First-Time Homebuyers? | The Zebra
- Student Loan Debt Statistics – Average and Total Debt | Self.inc
- A lower homeownership rate is the new normal | Urban Institute
- Student Loan Debt – National Association of REALTORS®
- The Impact of Student Loan Debt (2021 report) – National Association of REALTORS®
