Last month, President Joe Biden announced the federal government would forgive hundreds of billions of dollars of student loans. I believe this initiative is one of the most consequential administrative actions for housing in a generation. It could make homeownership accessible for millions of new homebuyers.
The student loan debt forgiveness decision has provoked a broad range of reactions. Some thought the forgiveness was too much, a betrayal of all of those who paid for college or repaid their loans. Those who called for all student debt to be forgiven thought it was too little. A few were in the middle, saying the president got it right.
According to a study conducted by the National Association of Realtors, “nearly half of student loan debt-holders say debt is delaying them from buying a home because they can’t save for a down payment (47 percent) and don’t think they qualify for a mortgage (45 percent).” And student loan forgiveness targeted to Pell Grant recipients will significantly impact borrowers of color.
The impact of student loan debt and homeownership is clear. In a study published in the Journal of Labor Economics in 2020, researchers from the Federal Reserve Board of Governors estimated that “a $1,000 increase in student loan debt lowers the homeownership rate by about 1.8 percentage points for public 4-year college-goers during their mid-20s, equivalent to an average delay of about 4 months in attaining homeownership.”
It is also important to remember that most people benefiting from student loan forgiveness are not graduates of four-year colleges or advanced degree programs. According to the U.S. Department of Education, 581 million student-debt holders have associate degrees, and another 389 million have certificates of completion, compared to 33.6 million undergraduates and 14.1 million with advanced degrees.
According to the U.S. Department of Education, graduates of for-profit barber and cosmetology schools make up eight of the ten schools nationwide with the highest student loan default rates. The reason for this is simple: incomes derived from these careers are rarely likely to be capable of servicing the debt necessary to become accredited.
Finally, before criticizing as deadbeats students who have their loans forgiven or suggesting they got something the rest of us did not, it would be good to ask if one’s job, or the job of a friend or family member, benefited from a Paycheck Protection Program (PPP) loan.
The Trump administration created this program and enacted it with strong, bipartisan Congressional support. As a result, over 10 million PPP loans were forgiven, more than $740 billion to date, including two taken by the National Housing Conference. With nearly 90 million jobs saved by PPP, I hope we can all agree it was worth it.
Some have expressed reasonable concerns that the program could inflate housing prices. This risk should not be dismissed, but can be significantly mitigated by the production of more starter homes. This market has largely disappeared. Proposals like the Neighborhood Homes Investment Act would create more starter homes by closing the appraisal gap in communities where home prices are so low they can’t appraise at the cost of construction or rehabilitation.
We must also make a real effort to fight local opposition to exclusionary zoning designed to keep single-family neighborhoods racially and economically segregated. Exclusionary housing regulations are the last bastion of bipartisanship in America. We see them as much in blue communities as red ones.
The National Housing Conference did not advocate for student loan forgiveness. Given the opportunity, it isn’t how we would allocate $400 million – more than twice the funding for housing passed by the House in the Build Back Better legislation. But there is no question that the student loan forgiveness decision will significantly impact housing, particularly for low- and moderate-income first-time homebuyers and cash-strapped renters.
David Dworkin is President and CEO of the National Housing Conference.
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