Fed Says Student Debt Is Hurting U.S. Housing Market

Report finds student debt has prevented 400,000 young Americans from buying homes, may help explain urban-rural economic divide

Student debt has prevented hundreds of thousands of young Americans from buying a home in recent years and may help explain why many college graduates have moved out of rural areas, the Federal Reserve said Wednesday.

The drop in homeownership among young households and the growing economic divide between rural and urban areas are two big puzzles of the economy this century. The Fed now says student debt—which has more than doubled over the past decade to $1.5 trillion—is one factor helping explain the shifts.

The share of households headed by someone between ages 24 and 32 years old who owned a home declined 9 percentage points in the decade through 2014, falling to 36% from 45%, the Fed said. There were many factors, but roughly 2 percentage points—or 20%—of the decline was directly due to households owing student debt, the Fed found.

The report also found that people with student debt are far more likely to move out of rural areas than those without student debt. “Only 52 percent of rural student loan borrowers still live in rural areas” six years after their records appear in a database that tracks consumer credit reports, the Fed said.