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Student Loan Debt and the Dream of Homeownership

Is It Possible to Have Both?

Buying a home remains a key part of the American dream, with 87% of Americans describing homeownership as part of "living the good life".¹

Unfortunately, for many, that dream is delayed, if not denied. While the median age of a first-time home buyer in 1981 was just 29 ², by 2024, the typical first-time buyer was nearly a decade older with a median age of 38. ³ What's more, 86% of those currently renting would like to buy a home but can't afford the purchase. ⁴

So, what's standing in the way of would-be buyers, and why are Americans waiting so long to buy a home of their own?

While high interest rates and record-high home price increases have become an obstacle in the post-pandemic era, ⁵ the period between the Great Recession and the end of the pandemic was marked by historically low financing costs. For the first time since data collection began, median mortgage rates remained below 6.00% for over a decade. ⁶

It isn't mortgage costs that affect the ability to buy a home for many, but a different kind of debt entirely: student loan debt. The rise in educational debt affects both the ability and desire to purchase a home, as well as the lifestyle choices likely to lead to property ownership.

Let's take a look at how.

Now and Then: How Many Americans Have Student Loans and How Has That Number Changed over Time?

Today, Americans are more burdened by student loan debt than at any time in history, with the total outstanding amount of federal student debt estimated at $1.6 trillion at the end of 2024. ⁷

Sharp increases in tuition prices ⁸ and a growing demand for college degrees for even entry-level positions ⁹ have contributed to more Americans borrowing and taking on larger amounts of debt than ever.

While this problem has particularly impacted younger Americans,⁸ older adults are also facing record student loan balances ¹⁰ - both their own and their children's. ¹¹

Rising College Costs and Increased Demand for Degrees Create a Perfect Storm

Student loan debt has become a fact of life for many because college is both more necessary and more expensive than ever.

Between 1980 and 2019, the average cost of college increased by 169% ⁹, while median income increased by just 53%. ¹²

Earning a simple bachelor's degree could now leave today's students with around $30,000 in outstanding federal student loans to repay - a tough burden given the median annual salary among 20 to 24-year-olds is just $41,184 in the first quarter of 2025. ¹³

Higher education is, of course, even costlier and can result in larger loan balances. Master's degree holders owed $67,800 on average, and those with a doctor's degree in a professional field had average outstanding loan balances of $177,100 as of 2024. ¹²

Unfortunately, for those concerned about the high costs of pursuing a degree, opting out is often not a viable option since a college education is now a prerequisite for so many jobs. In fact, while ¾ of all jobs required only a high school diploma or less in the 1970s, today, ⅔ of positions require post-secondary education and training. ⁷

Who Carries the Student Loan Debt Burden?

With $1.6 trillion in collective debt outstanding, it’s important to consider who bears the burden of unpaid student loans. The answer is more people than you would think.

One out of every six adult Americans now has student loans-which adds up to 43 million individuals with outstanding educational debt. ¹⁴ The numbers are even starker among young Americans, as one out of every four adults under 40 in the United States has debt acquired when earning a degree. ¹⁵

Young people owe the most, as Americans ages 25 to 29 account for ⅔ of all federal student loan borrowers and hold 70% of all outstanding federal student loans. Older Americans aren't unaffected though. Borrowers aged 50 and up owe a collective $336.1 billion-more than five times the amount of student debt this demographic group owed in 2004. ⁹

While some older Americans still have lingering loans from their own education, parents are increasingly going into debt for their childrens' degrees. There are 3.7 million families with Parent PLUS Loans, or loans used by parents to fund the undergraduate education of their children. Collectively, this debt adds up to a total of $104 billion. ¹⁰

How Does Student Loan Debt Affect Readiness to Buy a Home?

Owing tens of thousands of dollars has a profound financial impact on the financial lives of borrowers-including their readiness to purchase a home.

Around 29% of all Americans report putting off the purchase of a home as a result of their student loan debt, ¹⁶ and research revealed each $1,000 increase in debt lowers the average rate of homeownership by 1.8 percentage points for four-year degree holders. This is equivalent to a delay of approximately four months in attaining homeownership. ¹⁷

Unfortunately, money that would otherwise go to mortgage payments is likely being redirected toward loan debt as evidenced by a recent Federal Reserve survey which found that 19% of borrowers ages 18 to 29 would put student loan payments toward homeownership if their loans were forgiven, as would 12% of borrowers ages 30 to 34. ¹⁸

Factors Impacting Home Readiness

Student loans have a direct impact on the desire to buy a home because they leave borrowers with less disposable income and more financial uncertainty.

They can also affect readiness to buy a home in other ways, such as impacting the lifestyle factors that make people more likely to move toward ownership, which can affect the ability of would-be borrowers to qualify for a loan.

Here are some of the factors that affect home readiness that student loans impact, along with details on how student loans can interfere with mortgage eligibility.

Marital Status

Research has demonstrated that student loan debt is associated with delayed marriage, ¹⁹ with 13% of respondents to a Gallup poll indicating they put off tying the knot because of their debt burden. ¹⁶

With married couples accounting for the largest share of homebuyers at 61% of the market, ²⁰ delaying marriage can translate to delaying homeownership. Married couples in dual-income households can pool resources to open the door to homeownership by making it easier to save up for a down payment and afford the costs of a mortgage and home maintenance. ²⁰

Having Children

There is a clear association between homeownership and having a family, as the birth of a child often prompts people to consider becoming homeowners. The relationship between fertility and property ownership is so strong that a 10% increase in home prices results in a 1% decline in births among non-homeowners in metro areas. ²¹

For the 15% of student loan borrowers who admit to delaying childbearing because of student loan debt, delayed homeownership may be more likely because the birth of a baby doesn't serve as the impetus for the purchase. ¹⁶

Financial Stability

Feelings of financial instability can also make Americans less eager to take on the responsibilities of homeownership.

Unfortunately, student loan debt often increases money woes, with around 25% of all loan-burdened college graduates ages 25 to 39 reporting they find it either difficult to get by financially or are just getting by. This is a stark contrast to the 9% of those without student loans who say the same. ¹⁵

Those struggling with financial worries are less likely to want to buy a home and are less likely to be approved to do so even if they are interested in making the purchase.

Debt-to-Income Ratio

Debt-to-income ratio is one of the key criteria mortgage lenders consider when determining if a borrower is eligible for a loan. Borrowers who owe too large a percentage of their income may be unable to qualify to borrow.

Among borrowers with student loan debt, the average back-end debt-to-income ratio is close to 37%, with student debt payments taking up an average of 3.6% of borrower income. ¹⁹ The back end DTI ratio takes into account not just mortgage debt, but all other debts as well. The specific rules vary by lender, but a higher back-end DTI is a red flag and sometimes a disqualifying factor during the mortgage loan application process.

Borrowers with student loans are also more likely to take on other debt. Each $1,000 increase in student loan debt accrued by age 23 results in a 1.2 to 2.5 percentage point increase in the likelihood of using auto loans, goods secured loans, and installment loans over the next 10 years (with the specific effect varying depending on the market). ²²

These other debts can further impact back-end debt-to-income ratio, imposing additional difficulties in qualifying to borrow for a home.

Credit Score

Finally, borrowers with student loans are more likely to have lower credit scores. ¹⁹ This is especially true among those who struggle with repayment. An estimated 9 million Americans are behind on federal student loans, and could see score declines of up to 129 points. ²³

Credit score is a key factor in the mortgage qualification process, impacting both loan eligibility and rate offered. A low score can result in more limited and costly loan options, putting homeownership further out of reach.

Is Homeownership Still Possible?

Student loans undoubtedly make borrowers more likely to delay homeownership and less likely to be in a financial position to make a purchase.

This does not, however, mean that buying a home is out of reach. A Consumer Financial Protection Bureau survey showed 1 in 10 people with federal student loans who applied for loan relief programs were able to have some debt discharged, canceled or forgiven, so it’s worth pursuing that possibility to lower your debt-to-income ratio. ²⁴ Lenders such as Freedom Mortgage offer a variety of loan options for borrowers facing various financial situations. Options include government backed loans such as FHA, VA and USDA loans, which allow low or no down payment options and lower credit score requirements.