Smart SpendingSmart Spending

Your choice: A house or a college degree

The increasingly heavy yoke of student loan debt means that a generation of Americans is choosing education over homeownership, whether they realize it or not.

By MSN Money Partner Dec 14, 2011 10:20AM

This post comes from Marilyn Lewis at MSN Money.


A housing industry adviser last week pointed out to clients -- banks, builders, manufacturers and investors -- that student loan debt has become so huge, nationally, that it could be interfering with the housing recovery.


College graduates owe on average $25,000 for outstanding student loans, says John Burns Real Estate Consulting associate Rick Palacios Jr.


Palacios wrote a blog post, "Skyrocketing student loan debt will delay homeownership." "Student loan debt now totals $865 billion, which is greater than all credit card debt outstanding, as well as all other types of household debt except for mortgages!" he says.


Young Americans are, by default, choosing college, it appears. But it's unlikely that many will really perceive the choice they made until years later.


College-educated workers do earn more than workers without college degrees. But, on average, incomes of Americans under 44 have, at best, only held steady (after inflation) in 20 years. It takes a lot of earning power to pay off massive loans and save a down payment.


Palacios writes, "Today's 36.8% homeownership rate for 25 to 29 year olds is at its lowest level since 1999, and homeownership for 30 to 34 year olds is at its lowest rate in 17 years."

School debt tyranny

A future buyer already saddled with a big monthly payment is limited in what he or she can pay for housing -- or anything else.


The stress is visible at Wesabe, a budgeting and spending site, where many hundreds of comments document the struggle to repay college loans.


Palacios continues:

Even more troubling is the rise in debts associated with for-profit college and trade schools, whose revenues come primarily from debt available through Federal government programs. ... With the economy little improved since 2009 (two-year lag on data), default rates (for all types of schools) are bound to rise further.

In a phone interview, Palacios pointed to the latest Department of Education data, showing defaults in 2009. Overall, 8.8% of student loans were in default that year, up from 7% the year before. Here's a breakdown by the type of school:

  • Public institutions: 7.2%.
  • Private institutions: 4.6%.
  • For-profit schools: 15%.

Six million 25- to 34-year-olds ("a prized demographic for the housing sector," points out Palacios) have moved back with parents. That's a 26% increase since 2007. Post continues below.

The New York Times, in a story on student debt, also notes that default rates are rising, as are proportions of new students taking on debt: '"In the coming years, a lot of people will still be paying off their student loans when it's time for their kids to go to college,' said Mark Kantrowitz, the publisher of and, who has compiled the estimates of student debt, including federal and private loans."


The Times adds:

"If you have a lot of people finishing or leaving school with a lot of debt, their choices may be very different than the generation before them," said Lauren Asher, president of the Institute for College Access and Success. "Things like buying a home, starting a family, starting a business, saving for their own kids' education may not be options for people who are paying off a lot of student debt."

A government program lets "low-earning student borrowers … get out of debt, with income-based repayment that forgives remaining federal student debt for those who pay 15 percent of their income for 25 years -- or 10 years, if they work in public service," says the Times. For details see The College Cost Reduction and Access Act and


Even so, 10% of income devoted to loans may prevent someone from qualifying for a home, says Palacio.


The anonymous blogger Dr. Housing Bubble writes, in "Canceling out a generation of future homebuyers because of massive student debt":

In 1980 a median priced home in California would purchase 330 years of a UC education. Today it is down to roughly 20 and student loan debt is creating a new class of indentured citizens.

The post inspired 76 comments:


Writes "Michael D." (who financed his education "through scholarships, help from parents, working summers to save money and going to an inexpensive public school"):

I think a college education is absolutely essential these days, just like I think buying a house makes sense in a normal market. But education at any cost, and housing at today's prices just doesn't make sense. I think these student loans are really going to start having an impact on housing in the coming years. People are paying the same prices for housing or more than in previous years, and the student loans have removed the wiggle room from their budgets. It's a recipe for disaster whenever the most minor of road bumps comes along.

"I don't know anyone, myself included, that had the forethought to conduct a cost/benefit analysis before deciding on furthering their education," says another reader, "David F."


"Serf ceorl" shares this from the trenches:

I recently had a child and my 970 sq ft apartment is getting cramped. My wife and I would like to buy a home but my student loan payments are roughly $490 a month and hers are $425 (although she's prepaying a lot of principal). My home purchasing power has just been reduced by roughly $170,000. So if I wanted to buy a $500,000 house (which is just an updated house in my area) I can now only afford $330,000 (which buys far far less house). Moreover, given the roughly $1,000 a month student loan payments (And daycare, car insurance, etc) it is extremely difficult to save a down payment to buy a house.

More on MSN Money:

Dec 14, 2011 4:15PM

I graduate with a bachelor's of science next year. I'll be around $80,000 in the hole when this is all said and done. My only hope of owning a home is to find and marry a man who already owns his home. If that doesn't happen, guess I'll be a life time renter. Sad

But I really didn't think about that when I started school. Oh well, nothing I can do about it now.

Dec 15, 2011 2:20AM
I was 21 when I decided to buy my home, now I am 27 and never had any regrets. I graduated high school with less then perfect marks. I attempted college with loans paid for through our government. I am still paying on the loans (almost 7k), never graduated college, work at a machine shop pulling in 40k a year with no college credits towards the machining industry. I have several cousins that took the higher education route and passed with honors. Down side they are working part time, with mom and dad, owe my year salary on loans alone, and last cannot understand how I am the opposite with again no college credit. College doesn't ALWAYS mean a good paying job and the American Dream, it will help no questions asked. Let's say your child passes with a 4.0 gpa overall in college and 25 other students do the same, the job all 26 young adults want now is only hiring for 2 positions. 1 of the positions is taken by a family reference, 25 students to 1 job the odds are against you.
Dec 14, 2011 3:35PM
A Bachelor Degree is almost a requirement for many jobs in the work place. But an advanced degree will not give  you any benefits unless your current job requires it or you are in education. Save your money for a house. Technical schools are becoming a much better deal for the price in today's economy.
Dec 14, 2011 4:17PM
Sure hope highschoolers read the fine print on what a typical occupation pays vs what they want to invest in with a student loan. While I kept my own student loans to a minimum I did have 3 part time jobs to pay expenses. I would like to say that my parents only contributed funds for room and board living in  the dorms, not a frat or off campus living.
Dec 15, 2011 10:57AM
Robert - you're looking in the short term. At 27, of course you'll be better off than someone that did choose to go to college. The difference is at 47 or 57. 

I'm sure they're not going to be working part time their whole life. Probability shows they'll most likely make more than someone that doesn't go to college. That doesn't mean that they will 100%, but the demographics show that they are more likely to earn more money over the long term than someone that doesn't go to college. Short term pain for long term gain.
Dec 14, 2011 9:03PM

what i think is we should really out source CEO jobs and save millions and save millions in the process, I really think what goes around comes around .





Dec 14, 2011 9:56PM

i am sorry for my last comment. what I wanted to say is it really don't matter what they teach you .

when you get into the work place it is an all new story. everything is out dated  any way. and you have to start all over again when you do secure employment .

  I really wish  the along with your course they teach in collage is how to stab each other in the back

and how to make profit by sending labor over seas. it would be so great to wake up in a hospital bed  and talk to your nurse via computer monitor all in the sake of making money?  is this what we come down to ? why don't we move to another country if we don't like the cars  we make or the 

taxes we pay,or how we have the freedom of speech to say what we want,when we want .but I guess  none  of you have thought about what freedoms cost and have not severed  your country like some of have .


Dec 14, 2011 4:00PM
Looks like the author should have chosen college...after reading the sub-headline.
Dec 14, 2011 9:15PM

I was so lucky to get out of college without any student loans the first time. As calculated, I raised $18k for a Bachelors degree in 1996. My pell grant was canceled by President Clinton the month after my father lost his job at age 55. No one would rehire an aircraft manager with a limp, cane and gray hair to work on the line as a newby and there was zero chance in returning to management. I applied for every scholarship possible, worked two jobs (college paper and call center) and went to school full time. I still graduated in 4 years without many extra curricular college exploits like Greeks, parties, spring breaking, etc.


Now I'm disabled and the govt is limiting the govt funded reentry training of most college educated disabled folks even if their training is very out of date. I'm left mortgaging myself to get off disability instead of getting any help from Uncle Sam so I won't be collecting disability for the next 45 years.


I was astounded the public state university here has doubled in cost. It does have limited programs in my area of study so I returned to a Jr college for a certification to boost my hirablilty in my field. It's only $85 an hour. Several professionals I have met working in the IT industry recommend getting an Associates then try to find a job in your field so your employer will pay a portion of your Bachelors and maybe Masters. You will easily start out earning $30k instead of working a fast-food job and a couple unpaid internships on the 'University Only' program plus running up a ton of loans.


I don't understand the Designer appeal of a $100k Bachelors from a private institution anyway unless it's Ivy League. There's no prestige to living with your parents at 30 and earning $25k just to pay the minimum payments on the debts. Things may get easier with Obama's new plan but this is still asinine. As someone who has attended both private and public schools, the only difference is the price and the quality is the same.

Dec 14, 2011 3:27PM

Big duh!  I chose a home and got my education with night school, now on-line.  At 55 it nice not to have house payments.  Do I need a better home?  I can be on 7 lakes or 3 rivers in 15 min. from my house and I love to fish.  Jackson Hole 4 hours away for lunch, Yellowstone 6 hours away for a week vacation, and at least 20 ski resorts within 100 miles.  I'll keep mine and you keep your Condo (term used today for housing project of the 70's). Hee! Hee!

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.