How Do Student Loans Affect Buying A House? – Forbes Advisor – Technologist

Millennials and Gen Z are entering adulthood at a time when wages are stagnant and living costs are high. Gallup polling shows inflation is the primary financial problem plaguing Americans—but the financial pressure can be even more intense for early- and mid-career adults juggling student loan debt with other financial priorities.

In a Forbes Advisor survey of 2,000 adults from Talker Research, we found out how student loan debt impacts the financial lives of Millennials and Gen Z, including home buying, starting families or businesses and saving for retirement.

Millennials Tend To Owe More Student Loan Debt, But Gen Z Has Higher Monthly Payments

Our study found many Millennials, born between 1981 and 1996, and college-aged Gen Z, born between 1997 and 2006, are saddled with high student debt balances.

Most Millennial and Gen Z survey respondents hold balances over five figures, with 70% of Millennials and 68% of Gen Z carrying $10,000 or more in student loan debt.

Millennial respondents tend to have more debt, with an average student loan balance of $33,019. Gen Z respondents carry a student loan balance of $30,693 on average.

Gen Z Has an Average Payment That’s $100 Higher Than Millennials

Despite a lower average loan balance, Gen Z have paid more per month on their loans than Millennials. Gen Z make an average monthly payment of $300 toward their student loans, compared to Millennials, who report making an average payment of $202.

A larger group of Gen Z (36%) has paid more than $300 per month compared to just 18% of Millennial respondents who said the same.

A whopping 60% of Millennials report spending less than $100 per month on student loan payments, compared to just 37% of Gen Z. This could indicate Millennials are taking advantage of debt management options like forbearance or income-driven payment plans to lower their monthly bills.

Home Buying Challenges Student Loan Borrowers Face

A majority of Millennial and Gen Z respondents said they’re renters: 21% rent and don’t have plans to buy, while 49% rent and said they plan to buy a house in the future.

Despite a tough housing market—rife with stiff competition, high interest rates and high home prices—17% of respondents said they were able to purchase a home in the past five years. Another 13% purchased a home more than five years ago.

Challenges for Borrowers When Purchasing a Home

While having student loan debt and buying a home is possible, mortgage lenders put your finances under a microscope before approval. Like any other type of debt, having student loans can affect the total mortgage amount and rates you qualify for.

For the 17% of respondents who have purchased a home within the past five years, the top negative consequence of student loans was having to buy a cheaper house than anticipated, as reported by 23% of Millennials and 20% of Gen Z.

Roughly one-fifth of Gen Z and Millennials say they had to make a smaller down payment than anticipated due to their student loans. That down payment also took longer than anticipated to save for 23% of Gen Z and 16% of Millennials who purchased a home.

Challenges for Borrowers Hoping To Buy a Home

Savings are the biggest setback for Millennials and Gen Z who want to buy a home but haven’t yet: 45% of Millennial and 40% of Gen Z surveyed said saving for a down payment is taking much longer than expected.

Twenty-three percent of Gen Z and 21% of Millennials polled said they’ll need to buy a cheaper house than initially anticipated due to financial challenges stemming from student loan debt. And 17% of Millennials and Gen Z said making a smaller down payment than expected is another financial hurdle they’re experiencing.

Top Financial Goals of Younger Adults With Student Loans

Aside from buying a home, Gen Z and Millennials with student loans reported wanting to meet other milestones that require significant funding.

The most popular goal is making a major purchase—like a car or major appliances—which  37% of Gen Z and 36% of Millennials reported.

Saving for retirement was another big milestone that Gen Z (30%) and Millennials (35%) are working toward, and 34% of Gen Z and 29% of Millennials said they want to start a business.

Actions Gen Z and Millennials Need To Take To Achieve Goals

When asked if they needed to take any action to achieve their goals, 41% of Gen Z and 39% of Millennials said, “Look for a higher-paying job.”

Fifty-one percent of all respondents reported a household income below $50,000. Gen Z outearned Millennials on average, with an average household income of $70,950 compared to $65,055. Just 12% of Millennials and 17% of Gen Z reported a household income over $100,000.

Thirty-eight percent of Millennials and 34% of Gen Z said they need to cut back on nonessential expenses to achieve their financial goals. Thirty-four percent of Millennials and 33% of Gen Z said they would work additional hours or a second job in order to reach their financial goals.

Life Milestones Young Americans Are Delaying Due to Student Loan Repayments

Among those surveyed, postponing career plans was the most common milestone they had to delay due to student loan repayments.

Overall, 36% of respondents said they would postpone career plans, 29% said they would postpone pursuing additional education and 15% said they would delay having or adopting children.

34% of Respondents Regret Using Student Loans to Finance Their Education

Altogether, about one in three survey takers said they would choose not to finance their education again with a student loan if given the chance.

Broken down generationally, more Millennials (40%) said they wouldn’t use student loans, while 29% of Gen Z respondents said the same.

Interestingly, 53% of Gen Z and 41% of Millennials said they would use student loans again, including. Nineteen percent of respondents said they were unsure if they would choose loans again.

How Student Loans Are Impacting Younger Voters’ Decisions in the 2024 Presidential Election

Student loan reform is still a highly debated issue. As of May 2024, the Biden Administration has approved $167 billion in debt forgiveness for 4.75 million borrowers and proposed other debt solutions, like interest relief and reduced payments through the Save As You Earn (SAVE) plan.

However, a federal court blocked the SAVE plan, pausing the program after a lawsuit filed by Republican state attorneys general. When asked how policymakers should address the student loan debt crisis, Gen Z and Millennials suggested the following:

• Provide more loan forgiveness programs:
  • Millennials: 44%
  • Gen Z: 36%
• Reduce interest on student loans:
  • Millennials: 42%
  • Gen Z: 36%
• Reform student loan repayment options:
  • Gen Z: 29%
  • Millennials: 28%
• Increase funding for higher education:
  • Gen Z: 29%
  • Millennials: 28%

Over 50% of Younger Americans With Student Loans Will Factor Student Loan Policies Into Their November 2024 Presidential Vote

Roughly half of Gen Z (58%) and Millennials (48%) said they would consider a candidate’s student loan policies as a deciding factor when voting in the upcoming presidential election.

On the other hand, 35% of Millennials said they would not base their vote on student loan policies, compared to 26% of Gen Z. Additionally, 17% of Millennials and 16% of Gen Z were unsure whether student loan policies would influence their vote.

Tips For Gen Z and Millennials To Achieve Financial Milestones While Managing Student Loan Repayments

When student loan repayment takes a chunk of your paycheck for years (or decades), other financial goals could get knocked down on the priority list.

However, programs, products and tools exist that can help young and middle-aged adults make financial progress. Gen Z and Millennials can consider the following tips and strategies:

• Tap into high-yield savings accounts. High-yield savings accounts earn a higher-than-average return, which can help grow your money faster as you make deposits. Often, high-yield savings accounts can be found at online banks, but traditional banks and credit unions may offer them as well. Shop around to compare minimum deposit requirements, fees and rates.
• Set up auto-saving account features. The best way to ensure you’re always saving, even if you forget to make deposits, is to set up automatic transfers from checking to savings monthly or biweekly when you get paid.
• Max out retirement plans (when you can). If your company offers a 401(k) plan with a match, be sure to contribute enough to qualify for the match. Experts recommend putting 10% to 15% of your salary into retirement savings, but if you can’t contribute that amount right away, you could work up to it as you get raises and increase your salary.
• Look into low down payment plans. Low down payment programs can make buying a home with student loans possible. Some low down payment programs require as little as 1% down on a mortgage. However, note that with a smaller down payment, mortgage payments are higher and you start out with less equity in the home. Individual states and lenders may also provide programs that offer grants or assistance to cover the down payment and closing costs for first-time buyers.
• Consider student loan refinancing. If you have strong credit, student loan refinancing could decrease your interest rate and adjust your monthly payment to make it more affordable. Low-interest student loans from private lenders typically have no upfront fees and may come with benefits like income-based repayment plans and forbearance if you face financial hardship during repayment. However, private lenders don’t offer perks like federal loan forgiveness programs, which is an important factor to consider before refinancing federal loans.

Methodology

This online survey of 1,000 U.S. Gen Z and 1,000 U.S. Millennial adults with current student debt was commissioned by Forbes Advisor and conducted by market research company Talker Research, in accordance with the Market Research Society’s code of conduct. Data was collected from July 22 to July 30, 2024. The margin of error is ± 2.2 point with 95% confidence. This survey was overseen by Talker Research, whose team members are members of the Market Research Society (MRS) and the European Society for Opinion and Marketing Research (ESOMAR).