The rise in student loan debt over the past decade has raised questions about its potential impact on the economic well-being of young adults. Educational loans are a unique resource for those pursuing postsecondary education. On the one hand, debt is a borrowed resource that young adults can use to bridge the gap between their own and their family’s resources and the rising costs of college. On the other hand, debt comes with inherent risks, and some scholars have argued that high payment burdens may limit students’ opportunities and choices after college. Moreover, unlike other types of debt, student loan debt cannot be erased by filing bankruptcy, and there are often heavy financial penalties for missing loan payments. But despite rising concern about debt, little is known about the impact of student loan debt on longer term wealth acquisition and inequalities therein. We begin to address this question by examining the association of student loan debt burden and first time home buying. We also ask whether racial and socioeconomic disparities in student loan debt may be associated with inequality in home ownership among young adults.

To address these questions we use data from 4800 young adults who engaged in any postsecondary education in the National Longitudinal Study of Youth 1997 cohort (NLSY-97). Student loan debt is observed in the age 25 debts and assets module, and home ownership is observed at each survey wave. We first describe differences in student loan debt burden (e.g. student loan debt to income ratio; expected student loan payment to income ratios) and the probability of home ownership at age 25. We then examine the association of student loan debt at age 25 with the probability of home ownership over the next ten years, adjusting for a wide range of sociodemographic characteristics, and other forms of debt (e.g. credit card debt, other consumer debt). We use propensity score weighting to further adjust for selection into debt. We also take advantage of exogenous variation in institutional and state higher education costs (e.g. sticker price; net price) and financial aid generosity to instrument the effect of student loan debt on home ownership. Finally, among those who own homes at baseline when student loan debt is measured, we examine whether student loan debt is associated with the probability of home ownership exit in the next ten years. In all of these analyses we examine heterogeneity in the association of student loan debt and home ownership by race, socioeconomic status, and degree attainment (e.g. 2 year degree, 4 year degree, no degree).

This research has important implications for understanding how rising student loan debt may impact the long term wealth acquisition of a recent cohort of young adults. Given that rising student loan debt is in part a function of rising college costs and flagging state and federal aid, this work also has implications for understanding the potential costs and benefits of public funding of higher education.