A person puts money in a jar labeled "student loan payment" instead of a jar labeled "house payment."
Illustration by Lanette Behiry/Real Estate News; Shutterstock

Student loan payments are coming back — will they sideline buyers? 

As part of the government debt-ceiling deal, student loan payments that had been paused for the past three years will resume at the end of August.

June 6, 2023
3 minutes

Key points:

  • For around 45 million Americans, student loan payments could increase their total monthly outlay by around $400.
  • That extra payment comes at a challenging time, as inflation, mortgage rates and home prices remain high.
  • The situation provides an opportunity for "creative thinking" by agents trying to help younger, first-time buyers.

Later this summer, millions of Americans will have to start budgeting for student loan payments once again, which may create another affordability hurdle for younger first-time buyers.

College loan payments were reinstituted as part of the federal debt-ceiling agreement reached last week. The student loan repayment program was paused early in the pandemic and is set to resume on June 30, with payments coming due 60 days later.

A separate plan by the Biden Administration to forgive between $10,000 and $20,000 in student debt for most borrowers is currently being reviewed by the Supreme Court.

Student loan repayments were destined to start up again at some point, but the timing comes at a very difficult time for the homebuying market, said Lisa Sturtevant, chief economist at Bright MLS. Mortgage interest rates and inflation remain elevated, home prices haven't come down much in many markets, and credit appears to be tightening in the wake of a few high-profile bank failures.

Sturtevant noted that even after many of the pandemic-era stimulus measures came to an end, consumer spending remained robust. The restarting of the college loan payments may come as a shock, however, because it impacts around 45 million people who on average would be paying around $400 a month again.

"It's just one more thing that first-time homebuyers will have to deal with," Sturtevant said. "That makes it really hard."

When the student loan program was paused, a study by Jain Family Institute found that more young Americans did turn to homeownership. The rate of homeownership had steadily declined in recent years for that demographic, but rose from 17.8% in 2020 to 18.9% in 2022.

"The suspension of repayments for federal student loans and interest accrual in general has been a boon for some young borrowers looking to become homeowners," the report concluded.

What will this mean for the housing market?

Because young, first-time buyers with student debt represent a small segment of the overall housing market, Sturtevant doesn't anticipate a big impact on a macroeconomic level — especially since many of these buyers may have already been priced out of the market.

She also expects overall demand to remain strong in the coming months, tempered by the usual suspects: "Mortgage rates, high prices, affordability and a lack of inventory will remain constraints on the market," Sturtevant said.

The impact of student loan repayments may be felt farther down the road if it causes would-be buyers to delay their first home purchase, which would put them behind when it comes to building equity.

"Looking forward longer term, it's going to be really interesting to watch how this diverging access to homeownership plays out," Sturtevant said.

In the short term, potential first-time buyers may not be quick to jump into the market even if interest rates start coming down. "A drop in mortgage rates might not have as big a benefit to the first-time homebuyer market as we expected," Sturtevant said.

Instead, more young adults could decide to move back in with their parents to try and save money for a down payment while also paying off student loans — a possible "retrenchment of household formation," Sturtevant said, which could have implications for the rental market

What does this mean for agents?

The thing for agents to pay attention to, Sturtevant said, is understanding where these first-time homebuyers are coming from and looking for out-of-the box solutions.

"It feels like an opportunity for real estate agents to help with creative thinking if there are people who are still eager to make a home purchase," Sturtevant said.

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