Student-loan debt (now above $1 trillion) gets a lot of attention in housing circles, where it's often cited as one of the main culprits holding back young adults from buying their first homes.

But Goldman Sachs economists Eli Hackel and Hui Shan say that the benefits of a college degree outweigh the costs, with a lot of "ifs" attached — if the borrower finishes college, if the degree helps boost income, and if the student-loan debt is not too large.

How much debt is too much?

In their analysis about the millennial generation's impact on the housing market, Hackel and Shan tease out the answer by analyzing the homeownership rates of young adults ages 25 through 34, the millennials most likely to be looking for a home. They conclude that there are tipping points beyond which the debt burden is more likely to push homeownership out of reach.

After controlling for various factors, such as marital status and ethnicity, they found that having more than $50,000 in student-loan debt lowers the chances of owning a home. The homeownership rate for people who carry more than that is estimated to be 8 percentage points lower than it is for college graduates with less than $50,000 in student debt, according to the analysis, which is based on the Federal Reserve's 2010 Survey of Consumer Finance.

The analysis also compared young adults with no student loans — some with college degrees and the others with high school degrees only. The ones with college degrees came out on top, with a homeownership rate that's about 16 percentage points higher.


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Young adults who devote more than 5 percent of their monthly income to student loan payments also face hurdles. If their student loans eat up more than 10 percent of their income, that's the worst- case scenario. The homeownership rate among those millennials is roughly 22 percentage points lower than it is for the rest. Again, the analysis found that young adults with college degrees and no student debt have a higher homeownership rate than those with a high school degree only.

Only a small share of young adults — 6.6 percent — are borrowing sums that exceed $50,000. But they carry a disproportionate share of the debt.

The ratio of a person's monthly debt to their monthly gross income is a key factor in getting a mortgage. That ratio climbed dramatically among student loan borrowers, the analysis found. Nearly 60 percent of bankers rated high debt-to-income ratios as the one factor that makes them most hesitant to approve a consumer loan, according to a recent survey by FICO, developer of the nation's most widely used scoring formula.

Also, federal rules that took effect in January grant mortgage lenders broad legal protections as long as they do not approve mortgages for prospective buyers whose total monthly debt exceeds 43 percent of their monthly gross income.