Bachelor’s degree-holders enjoy homeownership more frequently than associate degree-holders do, and both bachelor’s- and associate degree-holders who graduate without any student loan debt enjoy home ownership at higher rates than their counterparts who graduate with debt.
Those are some of the key takeaways from new data presented this week by the Federal Reserve Bank of New York, or the New York Fed.
Dr. Rajashri Chakrabarti
Dr. Rajashri Chakrabarti, a senior economist in the Microeconomic Studies Function at the New York Fed, said the data show that college degree completion matters.
“Completion matters a lot. Graduation matters a lot,” Chakrabarti said. “If you take on student debt and you graduate, you actually do better than students who did not graduate, even better than students who did not take on debt and did not graduate.
“It’s important to graduate and that makes a lot of difference, at least in terms of the metric we looked at, which is home ownership.”
Chakrabarti presented statistics that show that, by age 33, those who graduated from college with no debt owned homes at a rate above 45 percent, whereas those who graduated with debt owned homes at just under 45 percent. Those who did not attend college owned homes at a rate of between 25 and 30 percent.
Bachelor’s-degree holders had higher home ownership rates regardless of debt status. For instance, bachelor’s-degree holders with student loan debt owned homes at a rate of above 45 percent, besting associate-degree holders without debt, who owned homes at a rate of just above 40 percent.
Chakrabarti noted that students who graduated with debt enjoy home ownership at higher rates than those who did not graduate — even those without debt — at every educational attainment level. For instance, college graduates with debt owned homes at a rate of above 50 percent, whereas non-college graduates without debt only owned homes at a rate of under 40 percent.
But within degree categories, debt makes a difference.
“If you are looking at the same category, graduates who took on debt versus those who did not, the ones who took on debt have lower home ownership rates than those who did not,” she said.
Chakrabarti said it’s important to issue the caveat that the relationships that degree attainment and student loan debt have with home ownership are “not causal” but instead “descriptive, and we should treat them as such.”
Nevertheless, William Dudley, president and CEO of the New York Fed, said: “The message is go to school and finish school.”
“Even if you have student debt, you’ll be in better shape than if you didn’t go to school and didn’t finish school,” Dudley said. “Even if you go to school and take on student debt, you’ll still do better than people who didn’t go to school.”
However, Andrew R. Hanson, a senior analyst at the Georgetown University Center on Education and the Workforce, says the relationship that college degree attainment and student loan debt have with home ownership is more complicated than what the New York Fed’s presentation might suggest.
“The relationship isn’t actually that clear,” Hanson told Diverse in a phone interview.
He noted that, prior to 2000, the data were similar to the data presented by the New York Fed, but that, in between 2000 and 2007, “that reversed for a while and then it came back to how it is now.”
“The question to me is whether there’s much of a relationship here at all, or other factors at play,” Hanson said of the relationship between college degree attainment and home ownership.
Hanson said the data suggest that paramount concern is not just completion but “completion with labor market value.”
Access and affordability are also important, Hanson said.
“There is evidence that a lot of folks who have the ability to complete a college credential choose not to do so because they’re afraid of the cost,” Hanson said. “A lot of that has to do with making college more affordable and making it more consumer friendly.”
The easiest way to make college more “consumer friendly” is to make it free, as do various “promise” programs such as the Tennessee Promise.
“That’s the No. 1 thing you could do for access and affordability is promote those programs,” Hanson said. “But I think in terms of this issue, which is folks being able to afford to pay their debt, it’s all about getting them into good jobs, essentially, and to do that, you have to have completion with labor market value.”
The annual student loan default rate has increased from 2 percent in 2003-04 to a peak of 3.5 percent in 2011-12 but has stabilized as of late, New York Fed data show.
Students from lower-income areas — that is, where the average income is less than $40,000 — defaulted on their loans at a rate of 35 percent but at progressively lower rates, as the average income in their neighborhoods increased.
Hanson said a bigger factor in home ownership is a structural shift since the 1980s in how long it takes college graduates to reach the average wage for their field.
“It’s not only homeownership. It’s everything having to do with household and family formation,” Hanson said. “They have to get more education. They have to get more experience before they can actually get access to a good job. So it’s just taking longer to launch their careers.”
“They used to reach the average wage at age 26,” he continued. “Now, it takes them until 30 to get to that same point.
“That to me is the bigger issue why folks are not buying homes until their 30s and, in some cases, their late 30s, because they have to get education and work experience under their belt in order to get good jobs and many people are failing to do that and are falling through the cracks, especially folks from disadvantaged backgrounds.”
Chakrabarti said the data presented this week suggest that college attendance “seems to mitigate the importance of family background” — at least with home ownership.
To bolster her point, she noted that the gap in home ownership between college graduates from families with above-mean incomes versus below-mean incomes is much smaller — just above and below 45 percent, respectively — than the gap between non-college attendees from the same groups — about 32 percent versus 26 percent, respectively.
“Students who went to college, irrespective of the amount of income they started with, have actually very similar homeownership rates,” Chakrabarti said.
Jamaal Abdul-Alim can be reached at firstname.lastname@example.org or follow him on Twitter @dcwriter360.