Student Debt Landscape Impacts Home Ownership in Boston

By Samiya Khalid, Policy Fellow for the Economic Mobility Lab

A home is often a family’s most valuable asset, making homeownership a powerful tool in promoting economic mobility and pathway to the middle class. However, historic discrimination in the housing market has made homeownership a contributing factor to the racial wealth gap. While homeownership among most racial/ethnic groups either held steady or increased since 2010, Black homeownership rates have continued to decline. In Boston, homeowners are 44% White, compared to 30% Black and 17%  Latinx Bostonians. 

Research indicates that this issue of low rates of homeownership is compounded in part to high levels of student debt. Student loan balances have quadrupled in the last 12 years, making it the second largest form of household debt, only behind home mortgages. 44 million Americans now hold $1.5 trillion in student loan debt. However, the burden of this crisis is not felt equally by all. In an economy where higher education is necessary for advancement, more people from low-to middle-income families are attending college. These families, disproportionately Black and Brown, often have to rely on debt to finance their education. 90% of Black students and 72% of Latino students take out student loans, compared to 66% of white students in the US. In addition to being more likely to take out loans, Black students also graduate with more student debt and take longer to pay it off. Higher loan repayment burdens mean less ability to build savings, accumulate assets, and spend in the economy overall, even with the higher incomes that come with a college degree. 

These two factors, in addition to an economic recession that has disproportionately impacted communities of color, make the work of the Economic Mobility Lab evermore pressing. With the pandemic raising concerns of individuals and families leaving cities more permanently, a successful pilot program  lowering debt and promoting asset building can provide more opportunity to historically marginalized communities while spurring economic investment back into the City. Examples of such income assistance pilot programs include: Camp Harbor View's guaranteed income pilot that provides 50 families with $585 per month for a period of two years and UpTogether that provides income support to 1500 families over 18 months. The Camp Harbor View’s program targets families whose households make more than $43,000, and therefore do not qualify for government assistance. These are the families that struggle to afford a house or pay student loans in high-cost cities like Boston. This pilot showed that, compared to 61% of the families in the control group reported their debt increased, only 39% who received this assistance reported the same. Through the assistance payments, 40% of the families who received payments were able to save, compared to only 16% of the families who did not receive the payments. This makes it evident that the assistance payment programs can significantly increase the likelihood of savings for families. 

2021 Living and Learning Debt Survey

In mid-2020, members of the Economic Mobility Lab (EMLab), the Housing Innovation Lab (iLab), SPARK Boston, and the Boston Home Center (BHC) met to discuss a potential partnership regarding student debt and the impact it can have on homeownership rates. A previous survey conducted by the Boston Home Center indicated that student debt and credit scores were the two largest barriers to purchasing a home. While there was a clear connection between student debt and barriers to home ownership, it was also clear that there was a lack of localized, Boston-specific data to characterize the impact. Better data could provide the necessary support to spur innovation for community driven solutions that help Boston residents pay down debt and build assets. 

In response to this need, the interdepartmental team designed a pilot survey to better understand the student debt landscape in Boston, including how it impacts the major life decision of buying a home. The pilot survey conducted internally with City Hall Employee Resource Group members indicated the importance of exploring the impact of student debt on home buying in Boston. Preliminary results from the pilot survey indicate that addressing the intersection between student debt and home ownership belongs on the City’s racial equity agenda, given that factors that drive up student debt and limit homeownership disproportionately impact Black and Latinx Boston residents. 

In an effort to better understand the student debt landscape in Boston, we launched the online survey to all Boston residents. We received 777 responses from across the City. Demographically, our responses are skewed towards females (75%) and renters (87%). Majority of the respondents are white (57%), Black/African American (15%), and Hispanic/Latinx or Spanish origin (17%). 87% of respondents are renters, while only 11% are homeowners. 

In terms of the loan characteristics, 49% of respondents had loans from an undergraduate degree, 18% from a graduate degree. Moreover, 41% of respondents have both public and private loans, 53% have only public loans and 4% have only private loans.  26% have over $70,000 in public loans and 24% have over $70,000 in private loans. 47% of the Respondents are not enrolled in any Repayment Plan, 37% are enrolled in an Income-Driven Repayment Plan and only 16% are enrolled in Public Service Loan Forgiveness.

“If I didn’t have $60,000 in student loans, paying $1000/month, I would have savings by now to purchase a home. I didn’t even choose an expensive school, went to my state college to keep prices low.”

“I feel like I am choosing between saving for future investments or paying off my debt as quickly as possible to avoid the exorbitant interest accumulation. My student debt & rent eats up the majority of my income, leaving very little for my savings.”

Self-reported FICO scores varied across respondents based on race. This likely has an impact on interest rates that respondents are able to get for student loans and housing loans. 64% of white and 74% of Hispanic/Latinx/e/a/o or Spanish Origin reported a FICO score of over 740, whereas only 18% Black or African American reported the same.

95% of respondents want to become a homeowner in the future, and 61% want to buy a house in Boston. Most respondents envision buying a home in more than three years from now. 66% of respondents report being severely impacted by their student loans in their ability to purchase a home. 59% state lack of savings and 85% report housing costs as severely impacting their ability to purchase a home.

“Childcare costs and student loan debt are where most of our money goes each month. This has prevented us from saving and it has been hard to have enough money for a down payment for a house.”

Recommendations

Our findings indicate that student loan debt continues to widen the racial-wealth gap in Boston. The Massachusetts Department of Higher Education must factor in race and ethnicity and gather information on financial aid recipients to develop equity driven policy solutions.  The data highlights that people tend to take more loans for undergraduate programs, compared to graduate programs. This indicates that people have prioritized their debt management plans by taking employer and school tuition assistance programs into consideration when choosing to pursue graduate school. Employers can play a massive role in supporting their employees with student loan repayment programs to offset their educational expenses. We also found that 47% of our respondents are not enrolled in any repayment plans. There is a dire need for more loan-specific education and credit training workshops for Boston residents, particularly for Black and Latinx communities. 

We have a unique opportunity to address this crisis with current federal funding opportunities. Allocating student loan specific funding through American Rescue Plan (ARPA) funds can be beneficial to uplift economic mobility. Launching a grant program for first time home buyers with student loans can be another form of support for long-term wealth building of our residents. High childcare costs and student debt are both found as key factors impacting first-time home buyers. An intersectional approach that caters to both of these policy issues is needed to support our first-time home buyers. 

The Biden Administration has taken significant steps towards loan forgiveness and reforming the PSLF to benefit all borrowers. However, we must continue to focus on implementing loan specific policies and programs given the devastating impact on home-ownership rates. More work needs to be done to uplift our Black and Latinx communities from student debt.