New evidence released suggest that the increases in college costs which have driven the accumulation of student debt has ripple effects that are hurting the U.S housing market and could have long term effects that harm the economy as whole. Examining the changes in student debt accumulation and housing ownership in the Commonwealth of Virginia.

1. 2014
Robert M. Davis, MPA
The Guy In Glasses
Student Debt: A Drag on U.S. Housing and the Economy

2. Student Debt: A Drag on U.S. Housing and the Economy
By Robert M. Davis, MPA
$1.1 Trillion; trillion with a “T”, that is now the total of outstanding student loan debt in the United
States. Student loan debt is now second largest kind of consumer debt in the U.S. Outstanding student
loan debt accounts for roughly 6%1
of the U.S. gross domestic product (GDP) outpacing credit card debt
and second only to mortgage debt2
.
In Virginia, the average debt of a bachelor’s degree recipient leaves college with $25,017; this debt
burden has increased 25% ($5,000 more) from 2007 to 20123
. The average level of debt correlates with
an increasing trend in the costs of college attendance that has grown 22% or $4,929 over the same
period4
. Compounding the growth in debt is the % of those loans that have fallen into default (unable
to make monthly payment) that has reached 11.5% in year 20135
. 7 in 10 college graduates now finish
college with debt and 1 in 5 households carry some form of student debt; this is double what it was 20
years ago6
.
Figure 1: The Institute for College Access & Success, College InSight, http://www.college-insight.org.
New research findings released show that student debt may be having a significant impact on the overall
U.S. housing market that could translate into long term economic effects for the U.S. economy as a
1
The United States' nominal GDP was estimated to be $17.4 trillion in January 2014
http://bea.gov/newsreleases/national/gdp/2014/pdf/gdp4q13_adv.pdf $1.1 trillion of $17.4 trillion is 6.3%
2
http://www.newyorkfed.org/householdcredit/2013-Q4/HHDC_2013Q4.pdf
3
See attached excel file for figures from The Institute for College Access & Success, College InSight,
http://www.college-insight.org. These figures are all Virginia higher education institutions that are classified as 4
year or above (Bachelors and above granting).
4
See footnote 3
5
http://blogs.marketwatch.com/capitolreport/2014/02/18/rising-student-loan-debt-is-stopping-first-time-home-
buyers/
6
http://www.marketplace.org/topics/wealth-poverty/why-student-loans-affect-housing-market

3. whole7
. The % of first time homebuyers has decreased -3% from year 2012-2013 to 28% of existing
home sales89
. Just 13 years ago, first time home buyers aged 25-34 made up 33% of existing home
sales10
. First time home buyers are essential to a housing recovery since their purchases have a ripple
effect that resonate through the housing market; current homeowners are able to move into
larger/pricier homes because first time homebuyers are the one’s buying the existing properties from
the current homeowners that want to move up11
.
Increasing student debt limits recent graduates from being able to afford enough for a down payment
for a home or even qualify for a mortgage due to their high debt to income ratio; student debt leverages
an individual, they essentially come out of school with a lot of debt and very little credit. This high debt
ratio makes an applicant look “risky” to a bank and subsequently denies the individual a mortgage12
.
This issue is further compounded as home sale prices begin to increase and interests rates along with
them. Following the recession, interest’s rates were at an all time low and home sales prices dropped
significantly. However, as the economy improved, so too has home sales prices and interest’s rates
which are now pricing out leveraged first time buyers from the market13
.
In Virginia, the number of housing units classified as owner occupied units has decreased by -1% while
renter occupied housing has increased by +1%. The % of total owner occupied housing units with a
mortgage has decreased by -4%. The % of individuals renting versus owning a home has increased while
the % share of homes owned with a mortgage have decreased14
.
Figure 2: 2007 & 2012 U.S. Census Bureau American Community Survey 1-Year Estimates
7
See footnote 5
8
http://www.pbs.org/newshour/rundown/first-time-homebuyers-fighting-for-a-spot-in-an-all-cash-world/
9
http://www.realtor.org/news-releases/2013/09/august-existing-home-sales-rise-limited-inventory-continues-to-
push-prices
10
http://www.businessweek.com/articles/2012-02-23/student-debt-is-stifling-home-sales
11
See footnote 10
12
http://www.advantageccs.org/understanding-what-debt-to-income-ratio-means
13
http://www.usatoday.com/story/money/business/2013/06/29/first-time-home-buyers/2472925/
14
See attached excel sheet with data values from American Community Survey 1-Year Estimates years 2007&2012
Virginia Hiousing Characteristics 2007&2012
U.S. Census American Community Survey
Year
# of Owner Occupied
Housing
# of Renter Occupied
Housing
% of Owner
Occupied Housing
% of Renter
Occupied Housing
2007 2,932,234 894,136 77% 23%
2012 3,038,967 969,867 76% 24%
Change 106,733 75,731 -1% 1%
Virginia Hiousing Characteristics 2007&2012
U.S. Census American Community Survey
Year
# of Housing Units
with a Mortgage
% of Total Owner Occupied
Housing Units with a
Mortgage
# of Owner Occupied Housing Units
Moved into Year 2005 and later
(2005-2007)* Moved into Yeay 2010
and later (2010-2012)
% of Total Owner Occupied
Housing Units with a Mortgage
Moved into Year 2005 and later
(2005-2007)
2007 1,490,034 51% 882,788 30%
2012 1,436,421 47% 827,464 27%
Change (53,613) -4% (55,324) -3%

4. Recent college graduates are spending roughly $1,000 more per year on their college loans than their
counterparts who graduated in 2010 alone. New college graduates are paying more toward their debt as
they have had to borrow more while wages for these graduates have been relatively flat for the past 10
years15
. High debt and reduced wage earnings in turn further exacerbate the debt to credit ratio. The
more earnings are dedicated to paying off existing debt, the less earnings are available to pay a
mortgage, buy a car or even purchase regular goods and services ; this creates the second effect which is
known as a slack in demand16
.
Irving Fisher in 1933 wrote about how when an economy has too much debt it therefore becomes more
susceptible to events like recessions; consumers reduce spending driving down demand and further
exacerbates the effects of the event (Individuals spend their money paying of their debt and not saving
for a house)17
. As new graduates take on more student debt to afford the increasing costs of college,
they are beholden then to the income earnings they are able to generate when entering the job market.
One of the effects of the recession however is many new graduates entering positions in which the wage
earnings may be insufficient to pay off their debt burden and in tandem save for a house or make other
purchases which fuels demand and the health of the economy overall.
Household debt as a % of GDP has increased over the last 30 years; as debt increases, consumers have
less to spend. As consumers have less to spend there is a decrease in demand. As demand decreases, so
too does supply; this drives reductions in the labor force and the income earnings that go with it1819
.
Figure 3: “Consumer Spending and the economy” (Stewart, Hale) http://fivethirtyeight.com/features/consumer-spending-
and-the-economy/
15
http://www.marketplace.org/topics/wealth-poverty/why-student-loans-affect-housing-market
16
http://bonddad.blogspot.com/2012/10/the-difference-between-slack-supply-and.html
17
http://fivethirtyeight.com/features/consumer-spending-and-the-economy/
18
See footnote 16
19
http://blogs.marketwatch.com/capitolreport/2014/02/18/rising-student-loan-debt-is-stopping-first-time-home-
buyers/

5. Additional Charts
Figure 4: “Quarterly report on household debt and credit” Federal Reserve Bank of New York
http://www.newyorkfed.org/householdcredit/2013-Q4/HHDC_2013Q4.pdf
Figure 5: Average debt of Virginia college graduates; years 2007-2012. The Institute for College Access & Success, College
InSight, http://www.college-insight.org.

6. Figure 6: Total costs of attendance of Virginia 4 year or greater institutions; years 2007-2012.The Institute for College Access
& Success, College InSight, http://www.college-insight.org.
Figure 7: % of Virginia graduates graduating with debt; years 2007-2012. The Institute for College Access & Success, College
InSight, http://www.college-insight.org.
$22,067
$23,349
$24,763
$26,996
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
2007-08 2008-09 2009-10 2011-12
Virginia - 4-year or above Virginia - 4-year or above Virginia - 4-year or above Virginia - 4-year or above
Total Cost of Attendance (on-campus)
Total cost of attendance (on-campus)
0%
20%
40%
60%
80%
100%
2007-08
2008-09
2009-10
2011-12Virginia - 4-year or
above
Virginia - 4-year or
above
Virginia - 4-year or
above
Virginia - 4-year or
above
58% 57% 58% 60%
42% 43% 42% 40%
% Graduating With Debt
Percent of graduates with debt Percent of graduates without debt

7. References
Bartash, J. (2014, February 18). Rising student-loan debt is stopping first-timers from buying homes.
Retrieved March 2014, from Blogs.Marketwatch.com:
http://blogs.marketwatch.com/capitolreport/2014/02/18/rising-student-loan-debt-is-stopping-first-
time-home-buyers/
Bureau of Economic Analysis . (2014, January 30). Gross domestic product: fourth quarter and annual
2013 (advance estimate). Retrieved March 2014, from BEA.gov:
http://bea.gov/newsreleases/national/gdp/2014/pdf/gdp4q13_adv.pdf
Davidson, K. (2014, February 18). Why student loans affect the housing market. Retrieved February
2014, from Marketplace.org: http://www.marketplace.org/topics/wealth-poverty/why-student-loans-
affect-housing-market
Federal reserve Bank of New York. (2014, February). Quarterly report on household debt and credit.
Retrieved March 2014, from New York Fed.org: http://www.newyorkfed.org/householdcredit/2013-
Q4/HHDC_2013Q4.pdf
Lane, S. (2013, September 19). First-time homebuyers fighting for a spot in an all-cash world. Retrieved
March 2014, from PBS.org: http://www.pbs.org/newshour/rundown/first-time-homebuyers-fighting-
for-a-spot-in-an-all-cash-world/
National Association of Realtors. (2013, September 19). August existing-home sales rise, limited
inventory continues to push prices. Retrieved March 2014, from Realtor.org:
http://www.realtor.org/news-releases/2013/09/august-existing-home-sales-rise-limited-inventory-
continues-to-push-prices
Olick, D. (2013, November 5). Tight credit squeezing first=time homebuyers out of market. Retrieved
March 2014, from NBCnews.com: http://www.nbcnews.com/business/real-estate/tight-credit-
squeezing-first-time-homebuyers-out-market-f8C11533219
Schmit, J. (2013, June 29). First-time buyers losing out as home sales rise. Retrieved March 2014, from
USA Today: http://www.usatoday.com/story/money/business/2013/06/29/first-time-home-
buyers/2472925/
Schueckler, L. (2013, December 17). Understanding what debt-to-income ratio means. Retrieved March
2014, from Advantageccs.org: http://www.advantageccs.org/understanding-what-debt-to-income-ratio-
means
Stewart, H. (2010, September 19). Consumer spending and the economy. Retrieved March 2014, from
FiveThirtyEight Economics: http://fivethirtyeight.com/features/consumer-spending-and-the-economy/
The Institute for College Access & Success, College InSight. (2014, March 29). Student debt data.

8. U.S. Census Bureau. (2014, March 29). 2007 & 2012 Ammerican Community Survey 1-Year Housing
Characteristics Virginia.
Willis, B. (2012, February 23). Student debt is stifling home sales. Retrieved March 2014, from
Bloomberg Businessweek market & finance: http://www.businessweek.com/articles/2012-02-
23/student-debt-is-stifling-home-sales