Student Debt preventing First Time Homebuyers? Not Exactly

Student Debt preventing First Time Homebuyers? Not Exactly

If you read headlines, which you honestly shouldn't pay too much attention to, you may have read that growing student debt is preventing Millennials from buying their first homes. 

Now while I will not deny that there is a fundamental problem in our higher education system, these headlines don't hold as much water as you think. 

First, the overwhelming majority of students that have debt have a reasonable amount of it, meaning under $20,000.

Secondly, the minimum monthly payment on that debt is usually pretty low, meaning that it won't knock most buyers out of qualifying.

The problem lies not in the debt, but where the debt comes from. Let me explain.

Let's pretend I have a borrower named Miley, and Miley went to a state school for Pre-Med, and then went to some fancy school like NYU or Columbia for her Master's and PhD. Naturally, she will have racked up a pretty penny in debt... possibly even close to $100K. Nevertheless, Miley has acquired what economists call "Human Capital." The time and money that she has invest in herself make her very valuable to potential employers, leading to a decent starting salary, benefits, and most importantly, growth opportunity. This debt is what I personally consider to be healthy. This is not the debt we read about in the headlines.

What we read about is debt acquired from "for-profit schools." This includes University of Phoenix Online, Monroe College,  ITT Technical Institute, and DeVry. Basically, all the schools you hear advertise on TV and Radio.

Now these schools are not inherently bad. In fact, many rightfully argue that they are a great alternative to low income minorities who are overlooked by "the system," due to factors like age and prior education.

However,  

 

 

 

 

 

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