The dream of homeownership has long been a hallmark of the American experience. Yet for millions it now feels increasingly elusive. The median age of first-time homebuyers is at an all-time high, according to the National Association of Realtors®. While sky-high home prices and elevated mortgage rates are often blamed, a less obvious yet potent force is at play: student debt.
In the last three decades student loan burdens have exploded. Research from First American shows average student debt has leapt by nearly 70%, from $73,000 in 1992 to $122,000 in 2022. While college graduates tend to earn more, and longer loan terms have eased monthly payments for some, those factors haven’t been enough to lift the crushing weight of debt for an entire generation.
Could forgiving student loans inject some form of momentum into a sluggish housing market? According to experts and real-world examples, the answer is a resounding yes.
How Student Loans Are Holding Homebuyers Back
Student loan debt doesn’t just burden borrowers emotionally. It actively prevents them from buying homes, too. Experts say forgiveness programs can give borrowers the ability to plan their finances toward homeownership by providing clarity on when their student loan debt will no longer be a factor in their monthly expenses.
But how exactly do student loans impede the path to homeownership?
1. Delayed Down Payment Savings
Saving for a down payment is arguably the most daunting hurdle for first-time homebuyers. According to Realtor.com®, the median down payment is $30,400, far below the traditional 20% target of $41,920.
Now factor in student loan debt. The average borrower is paying $536 a month for 20 years, according to the Education Data Initiative. That’s money that could otherwise be used to build a down payment. For many the equation doesn’t add up, locking them out of homeownership and turning their dreams into an elusive fantasy.
2. Debt-to-Income Ratio
Even if you succeed in scraping together a down payment, student loans can still slam the door on homeownership. Many people cite student debt as the main reason they don’t own a home as their debt-to-income ratio is simply too high.
The debt-to-income (DTI) ratio—a deciding metric for lenders assessing whether you qualify for a mortgage—measures your monthly debt obligations against your income. High student loan payments can push the ratio into dangerous territory, making lenders wary of approval or forcing borrowers to accept unfavorable terms.
Recent changes to federal loan repayment programs, such as the Saving on a Valuable Education (SAVE) plan, have aimed to keep DTI ratios low by tying payments to income. But such programs are now under threat. One TikToker recently shared how her husband’s monthly payments could balloon from under $500 to nearly $5,000 if proposed changes to the SAVE plan are enacted.
This kind of strain can outright disqualify borrowers from securing a mortgage, pushing the dream of homeownership even further out of reach.
How Loan Forgiveness Can Help the Housing Market
What would happen if student loan debt were forgiven on a larger scale? To grasp the potential effects, consider Illinois’s SmartBuy program, which has already demonstrated promising results.
Launched by Governor J.B. Pritzker, SmartBuy helps eligible homebuyers pay off up to $40,000 in student loans, with an additional $5,000 in down payment assistance. One success story, James Ekstrom of Rockford, IL, had $37,000 of his student debt forgiven and was able to buy his first home.
The program has temporarily closed due to exhausted funding. Still, Ekstrom’s experience underlines the ripple effect of student loan forgiveness. By freeing up cash flow, borrowers can afford homes and invest in properties and communities, injecting new life into the housing market.
The case for student loan forgiveness isn’t just about helping individual borrowers, though. It’s about kickstarting the economy, too. Sabrina Calazans of the Student Debt Crisis Center argues that canceling debt could be transformative: debt cancellation would help millions of borrowers start families, launch businesses, buy homes, and invest in their future.
The logic is simple. When people aren’t drowning in debt, they spend more, take risks, and fuel economic growth. For the housing market this could mean a surge in demand, rising home sales, and a much-needed revival of neighborhoods that have been stuck in limbo for years.
