Millennials With Student Loans See 35% Decline in Homeownership

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It’s no secret that student loans are preventing millennials from reaching traditional adult milestones. But, as of yesterday, new proof has come out showing how much millennials’ debt is affecting the economy.

According to the Federal Reserve Bank of New York, the combination of increasing tuition and student loan debt could be responsible for up to 35 percent of the decline in homeownership for people aged 28 to 30.

Even if student loan debt itself doesn’t prevent millennials from owning real estate, rising delinquency rates on the loans can. As we’ve previously reported, student loan debt delinquency is up to 11.2 percent. That could mean lower credit scores and a lower likelihood of being approved for a mortgage.

So what can you do if you’re a millennial in debt hoping to purchase a home in the next few years? Read on to find out.

Why fewer millennials are homeowners

To understand the relationship between indebted millennials and real estate, the Federal Reserve Bank of New York studied nine groups of people who graduated between six and eight years ago. The reason? To discover their homeownership rates by the time they turn 28, 29, and 30.

What they found was that the increase in college tuition from 2001 to 2009 likely contributed to a decline of 11 percent in homeownership for this age group.

What’s more, the data concluded that a mean increase of debt per capita of $5,707 from the years of 2003 and 2011 has contributed to a 35 percent decrease in homeownership for people aged 28 to 30.

While this report shows the impact millennials’ debt has on their ability to become homeowners, it’s also important to look at the various ways the debt can have that impact. In the relationship between millennials and real estate, it’s complicated.

First of all, if you’re paying high student loan debt bills each month, you might find it nearly impossible to save for a home down payment. Although your regular, on-time payments are helping your credit score grow, the lack of a down payment is forcing you to remain a renter.

And if your student loan bills are so high that you can’t afford to make the payments each month, then you may face student loan delinquency or default. And that can lead to a downward spiral that’s hard to get out of — both financially and for your credit score.

No matter which situation you’re looking at, you have the power to turn things around. It’s all in how you manage your student loan debt.

Saving for a home while paying student loans

Paying off your student loans might seem downright impossible, much less working to save for a home while you do so. But luckily, it can be easier than you think. You simply have to approach your student loans strategically.

Here are four steps to help you achieve homeownership while wrangling your student loan debt.

1. Refinance your loans for a lower interest rate

If you have good credit and a solid student loan payment history, you can create wiggle room in your budget for a home down payment by refinancing.

If you refinance your student loans, you can get a lower interest rate. That means more of your payment will go to your principal balance. You can also decide to either increase your repayment terms to lower your monthly payments or take on a shorter repayment period to get out of debt faster.

What you decide is up to you, but if you want to own a home sooner rather than later, then taking on a longer repayment term could lower your monthly payment enough to let you significantly increase your rate of savings for a down payment. Just remember that will extend how long you have student loan debt.

If you’re consider refinancing, be sure to research the top refinancing lenders for student loans for the best rates and terms.

2. Use income-driven repayment if you’re struggling to pay

If you’re just barely making your payments each month and fear you might end up in default, then it’s time to take advantage of income-driven repayment plans.

These plans are useful because they lower your payments to a certain percentage of your income. They also make you eligible for forgiveness after a certain amount of years. If an income-driven repayment plan lowers your payments enough, you might even be able to put more money each month toward a home down payment.

Keep in mind, if you have private student loans, you can’t put them on an income-driven repayment plan. Still, if you are experiencing financial hardship, speak to your lender about your options.

3. Open a separate savings account for your down payment

Once you’ve chosen the right strategy to lower your student loan payments, the next step is to divert your savings into a high-interest savings account.

That savings account should only be for your future down payment. Don’t touch it for any reason if homeownership is your main goal.

Depending on your circumstances, it might seem like you’re not making much savings progress. Try to remember that building the habit of saving for a goal is as important as the savings itself. Strengthen that muscle now so, when your income eventually increases as your career grows, you’ll be ready to take your savings to the next level.

4. Throw any windfall into savings

Speaking of taking your savings to the next level, that’s exactly what you should do if you receive extra money. I’m talking about tax refunds, bonuses from work, birthday money, and so on.

Although it’d certainly be more fun to spend that money on a gift for yourself or a trip, use it instead to boost your savings.

When you see your savings jump because of that extra money you put in, it can make you feel more confident that you’ll save enough for your future home.

Millennials’ debt isn’t the end of homeownership

If you’re a millennial in debt, then a lot of this might seem overwhelming. But there is a light at the end of the tunnel.

An April report from the Federal Reserve Bank of New York showed that older millennials might have a better chance at homeownership — after they turn 33.

What’s more, Fannie Mae is raising the ceiling on debt-to-income ratios (DTI). This is helpful because hitting the ceiling on DTI makes it harder to get approved for a mortgage. When the ceiling is raised July 29, you’ll have more wiggle room in how much debt you can have.

Even if homeownership feels far away now, following the four steps above will help you lower your monthly payments to increase your rate of savings for a down payment. And that means you don’t have to wait until the day you hit a zero-dollar balance on your student loans to save for a home.

In the meantime, you can move at will and not worry about things like mowing the lawn while you live as a renter. Not owning a home right away isn’t all bad.

Interested in refinancing student loans?

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1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

3 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Undergrad
& Graduate
Visit Earnest
2.80% – 6.38%1Undergrad
& Graduate
Visit Laurel Road
2.48% – 7.52%2Undergrad
& Graduate
Visit SoFi
2.47% – 7.99%Undergrad
& Graduate
Visit Lendkey
2.57% – 6.65%3Undergrad
& Graduate
Visit CommonBond
2.72% – 8.17%4Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.