Aspiring homebuyers in expensive coastal markets would see the biggest benefits, but the plan would do little to help the overall housing affordability crisis.
A couple of weeks ago, 396 graduating seniors at Morehouse College in Atlanta received a massive graduation gift: their student debt was eliminated by billionaire Robert F. Smith. Thanks to his generosity, these newly debt-free graduates could save up for a down payment on a median-priced local home in just 7.3 years, compared to 12.9 years if they had to pay off their student loans before saving for a down payment. Based on 2017 estimates of $31,833 in debt per student, and saving 10 percent of Atlanta’s median income for the 24-44 year old age bracket of $66,357, the gift of debt forgiveness could get them into their own home 5.6 years faster.
As part of her presidential campaign, Senator Elizabeth Warren has introduced a proposal to cancel up to $50,000 of student loan debt per person. Under this plan a typical aspiring first-time homebuyer laden with student debt could save a down payment in nine years, three years faster than the 12 it currently takes.
These figures are based on a new Redfin analysis of student loan debt data by metro area from LendingTree, income data from the Bureau of Labor and Statistics, and our own home price data. For this analysis, we looked at a typical potential first-time homebuyer, earning the national average $65,879 of the Census Bureau’s 24-44 year old age bracket (which includes most Millennials, currently aged 20-38 years old) with the national average $17,938 in student debt. We also broke down the local numbers for 49 major metro areas.
We assume a potential homebuyer with the average amount of student debt spends 10 percent of her income ($549 per month) on debt repayment at the average 5.8 percent interest rate. If after paying off her student debt she started saving that 10 percent of her income toward a 20 percent down payment on the national median-priced home ($308,000), it would take 12.3 years to pay off her student loans and save enough money for the full 20 percent down payment ($61,600), assuming home price and income did not change. Under Elizabeth Warren’s plan to cancel up to $50,000 of student loan debt, she could instead immediately begin saving for a down payment, shrinking the time it would take to save up the down payment to 9.4 years.
“The idea of taking on a mortgage when you’re still paying off tens of thousands of dollars in student loans is a non-starter for many people,” said Redfin chief economist Daryl Fairweather. “If student debt were eliminated, college grads would be able to start building wealth through homeownership, laying down roots and contributing to their communities years earlier in their lives. An influx of young, educated homeowners could have positive impacts on neighborhoods and society at large.”
Under Warren’s student debt forgiveness plan, the median 24 to 44-year-old homebuyer in Detroit, where the typical home costs $130,000, could save for a down payment in just 4.2 years—the shortest time in the nation—down from 7.4 years currently.
Metro areas with the highest ratios of student debt to income could see the biggest decrease in the time it takes to save for a down payment, with metros in the South like Memphis (4.3 years quicker), Birmingham (4.0 years quicker), and New Orleans (3.9 years quicker) among those where student-debt laden homebuyers stand to benefit the most.
It’s important to note that this analysis considers the median student loan balance of everyone with student debt, whether they just graduated or they have been paying off their loans for 10 years. For recent graduates with debt closer to the $50,000 forgiveness limit in Warren’s plan, debt forgiveness would give them a much faster jumpstart on homebuying than the three years suggested by the average.
Table: Here’s how much quicker aspiring homebuyers, age 24 to 44, could save for a down payment without student debt, by metro area
| Metro Area | Median Remaining Student Debt Balance | Median Annual Income of 24-44 year-olds | Median Home Price | Years to Pay Off Student Debt, Then Save 10% of Income Toward a Down Payment | Years to Save Down Payment Without Student Debt | Time to Homeownership Saved (Years) if Student Debt were Eliminated |
|---|---|---|---|---|---|---|
| Atlanta, GA | $22,232 | $66,357 | $241K | 11.0 | 7.3 | 3.7 |
| Austin, TX | $17,963 | $76,969 | $305K | 10.4 | 7.9 | 2.5 |
| Baltimore, MD | $19,854 | $85,562 | $255K | 8.5 | 6.0 | 2.5 |
| Birmingham, AL | $20,679 | $57,502 | $203K | 11.1 | 7.1 | 4.0 |
| Boston, MA | $17,869 | $97,871 | $472K | 11.6 | 9.6 | 1.9 |
| Charlotte, NC | $19,385 | $66,867 | $245K | 10.5 | 7.3 | 3.2 |
| Chicago, IL | $19,307 | $73,392 | $240K | 9.4 | 6.5 | 2.9 |
| Cincinnati, OH | $18,704 | $68,511 | $177K | 8.1 | 5.2 | 3.0 |
| Cleveland, OH | $18,743 | $56,161 | $145K | 8.9 | 5.2 | 3.7 |
| Columbus, OH | $19,125 | $71,181 | $200K | 8.5 | 5.6 | 2.9 |
| Dallas, TX | $18,257 | $70,064 | $295K | 11.3 | 8.4 | 2.8 |
| Denver, CO | $20,180 | $81,787 | $409K | 12.7 | 10.0 | 2.7 |
| Detroit, MI | $18,552 | $62,628 | $130K | 7.4 | 4.2 | 3.3 |
| Hartford, CT | $16,948 | $76,235 | $205K | 7.8 | 5.4 | 2.4 |
| Houston, TX | $18,524 | $64,590 | $240K | 10.6 | 7.4 | 3.1 |
| Indianapolis, IN | $19,065 | $62,054 | $180K | 9.2 | 5.8 | 3.4 |
| Jacksonville, FL | $18,390 | $62,115 | $226K | 10.5 | 7.3 | 3.3 |
| Kansas City, MO | $18,854 | $71,313 | $215K | 8.9 | 6.0 | 2.9 |
| Las Vegas, NV | $16,184 | $60,460 | $280K | 12.2 | 9.3 | 2.9 |
| Los Angeles, CA | $17,265 | $72,654 | $620K | 19.6 | 17.1 | 2.6 |
| Louisville, KY | $17,372 | $61,088 | $180K | 9.0 | 5.9 | 3.1 |
| Memphis, TN | $18,866 | $49,834 | $165K | 10.9 | 6.6 | 4.3 |
| Miami, FL | $19,265 | $59,520 | $300K | 13.7 | 10.1 | 3.6 |
| Milwaukee, WI | $17,418 | $65,527 | $208K | 9.2 | 6.3 | 2.9 |
| Minneapolis, MN | $17,715 | $83,933 | $275K | 8.8 | 6.6 | 2.3 |
| Nashville, TN | $18,917 | $67,802 | $288K | 11.5 | 8.5 | 3.1 |
| New Orleans, LA | $18,592 | $52,910 | $209K | 11.8 | 7.9 | 3.9 |
| New York, NY | $18,054 | $83,410 | $380K | 11.4 | 9.1 | 2.3 |
| Oklahoma City, OK | $17,278 | $60,462 | $179K | 9.1 | 5.9 | 3.1 |
| Orlando, FL | $18,997 | $57,270 | $250K | 12.4 | 8.7 | 3.7 |
| Philadelphia, PA | $18,226 | $74,413 | $196K | 7.9 | 5.3 | 2.6 |
| Phoenix, AZ | $17,500 | $65,451 | $270K | 11.2 | 8.3 | 2.9 |
| Pittsburgh, PA | $18,927 | $70,169 | $162K | 7.6 | 4.6 | 2.9 |
| Portland, OR | $18,765 | $80,348 | $392K | 12.3 | 9.8 | 2.5 |
| Providence, RI | $15,025 | $71,118 | $267K | 9.8 | 7.5 | 2.3 |
| Raleigh, NC | $21,357 | $76,729 | $285K | 10.5 | 7.4 | 3.0 |
| Richmond, VA | $21,915 | $68,105 | $250K | 10.9 | 7.3 | 3.6 |
| Riverside, CA | $16,642 | $65,395 | $370K | 14.1 | 11.3 | 2.8 |
| Sacramento, CA | $17,592 | $69,851 | $395K | 14.0 | 11.3 | 2.7 |
| Salt Lake City, UT | $15,165 | $75,706 | $321K | 10.6 | 8.5 | 2.1 |
| San Antonio, TX | $17,089 | $57,888 | $225K | 11.0 | 7.8 | 3.2 |
| San Diego, CA | $15,984 | $78,433 | $565K | 16.6 | 14.4 | 2.2 |
| San Francisco, CA | $18,750 | $120,587 | $1.4M | 24.9 | 23.2 | 1.6 |
| San Jose, CA | $15,273 | $132,609 | $1.1M | 18.0 | 16.8 | 1.2 |
| Seattle, WA | $16,003 | $91,364 | $560K | 14.1 | 12.3 | 1.9 |
| St. Louis, MO | $19,229 | $68,805 | $176K | 8.2 | 5.1 | 3.1 |
| Tampa, FL | $19,313 | $57,591 | $225K | 11.6 | 7.8 | 3.7 |
| Virginia Beach, VA | $20,395 | $62,557 | $220K | 10.7 | 7.0 | 3.6 |
| Washington, D.C. | $22,803 | $100,467 | $390K | 10.2 | 7.8 | 2.4 |
| National | $17,938 | $65,879 | $308K | 12.3 | 9.4 | 3.0 |
* Note: Years have been rounded to the nearest tenth and may not add up across each row.
The complex logistics and controversial nature of Warren’s plan make it seem unlikely that something this dramatic would actually be implemented even if she were to be elected President in 2020. But if it does, it would certainly make it possible for educated young professionals to achieve the American Dream of homeownership years faster than they are able to today.
Even if student debt were forgiven with a plan like Elizabeth Warren has proposed, it is unlikely to really address the core problem of affordability that many people are experiencing in the housing market today. Student debt holders whose loans were forgiven would be able to afford to buy a home sooner, but this could actually make overall affordability worse as demand for homes would increase with a surge of new buyers. The key to solving the housing affordability crisis is to dramatically increase the supply of homes by building more homes in the places where people want to live.
Rather than focusing on the demand side of housing, presidential candidates and other politicians should consider encouraging and enacting supply side solutions to the affordability and wealth inequality crises in America. One example: changing zoning laws to make it easier for builders to create more dense housing in cities (such as the elimination of exclusive single-family zones in Minneapolis) is a policy that would have a big impact on affordability for everyone.
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