Student loan payments may push some Americans further away from homeownership: survey

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The impact of student loan payments, due to resume in October, could set the housing market off track by at least a year, some housing experts believe.

Student loan payments are set to pick up again in October after a 42-month payment and interest accrual pause, according to the Department of Education. Student loan interest began accumulating on September 1, 2023.

About 58% of the housing expert respondents said that resuming payments on student loans is likely to have a major impact on housing affordability and 35% said it would harm homeownership rates, according to the Pulsenomics survey.

Over one-third said the impact on housing is likely to last between one to two years, according to the survey. That’s because most borrowers (70%) owe an average unpaid balance of roughly $38,000 and are between the ages of 25 and 49 years old – prime homebuying years, according to the survey.

If you are looking to buy a home, you could get a better rate by shopping for the best rate on a loan. You can visit an online marketplace like Credible to compare rates, choose your loan term and get preapproved with multiple lenders at once.

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Home prices and mortgage rates hit new record highs during student loan payment pause

While the pause on student loan payments has helped some students build savings, housing costs have risen significantly over that period, with mortgage payments on new home loans more than doubling and rents rising about 27%, according to a recent Zillow report.

“The pause on student loan repayments over the last three and a half years helped many households weather the pandemic and the high inflation environment that accompanied it,” Zillow said. “Based on current student loan balances, the typical student loan borrower delayed slightly less than $15,000 in payments as a result of this pause.”

Mortgage rates have fluctuated within the 6% to 7% range since the beginning of the year, well above last year when the average was 5%. At that rate, today’s homeowner is paying $2,612 monthly for an average-priced home, according to Redfin. These high costs have dampened homebuying demand, with mortgage-purchase applications falling to a 28-year low. 

“The money from deferred loan payments helped buffer these sharp increases,” Zillow said.

If you’re considering becoming a homeowner, it could help to shop around to find the best mortgage rate. Visit Credible to compare options from different lenders without affecting your credit score.

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SAVE could help borrowers reduce monthly costs

More than 4 million student loan borrowers have enrolled in President Joe Biden’s new Saving on A Valuable Education (SAVE) income-driven repayment (IDR) plan as the start date for repayment nears. 

The SAVE plan could lower borrowers’ monthly payments to zero dollars, reduce monthly costs in half and save those who make payments up to $1,000 a year, the White House said in a statement. 

This new IDR plan was announced after the Supreme Court’s decision to strike down Biden’s student loan forgiveness plan. The plan would have canceled up to $10,000 in federal loans per borrower making less than $125,000 a year (couples making less than $250,000) and up to $20,000 per borrower for those who used Pell Grants in college, eliminating about $441 billion in outstanding student debt.  

The plan could also help borrowers save hundreds of dollars each month, allowing them to shoulder the high cost of housing, according to Zillow. 

“All in all – it’s important for student loan borrowers to be prepared to resume their payments this fall, and keep those payments in mind when making housing decisions now,” Zillow said. “The SAVE program can significantly reduce the burden on many households with student debt, opening up more opportunities and flexibility in their housing journey.”

If you hold private student loans, you won’t be enrolled in a federal income-driven repayment plan, but you could refinance your loans to a lower rate. Contact Credible to speak to a home loan expert and get all of your questions answered.

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Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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