Note. Student loans disbursed are measured as the total amount of federal student loans disbursed to individuals before age 23. Tuition is the average in-state tuition at public 4-year colleges in the individual’s home state over the 4 years following his or her eighteenth birthday. Student loans and tuition are in constant 2014 dollars. School sector, degree, and Pell Grant controls represent payday loans in Iowa the sectors, the attained degree, and whether individuals received Pell Grants before age 23. respectively. Cohorts are defined as the school year in which individuals turn 18 years old. Yearly state controls represent local economic conditions in individuals’ home state at age 22. Mortgage amount represents the size of the first mortgage amount observed in the data set between ages 22 and 32. Ever nonprime and subprime represent whether individuals had scores that roughly correspond to FICO scores of 620 and 680, respectively, between the ages of 22 and 32. Ever delinquent represents whether individuals were delinquent on student loan debt or on credit card debts or auto loans for at least 90 days between the ages of 22 and 32.
In this section we present our findings. First, in section IV.A we describe some basic correlations between student loan debt and homeownership, including how these evolve over the life cycle and vary by education level. In section IV.B we show the results of several regressions, attempting to address the endogeneity of student loan debt by controlling for observable characteristics. Our main identification strategy, using an instrumental variable approach and the treatment/control group framing, is detailed in section IV.C. We then present the results in section IV.D. In sections IV.E and IV.F we discuss potential failures of our identifying assumptions and run a variety of tests to validate them. Finally, in section IV.G we estimate the effect of student loans on individuals’ credit scores and delinquent status as well as the size of their mortgage balances.
A. Patterns of Debt and Homeownership
Student loan debt is correlated with homeownership, but this relationship is not stable over the life cycle. Figure 1 plots the probability of ever having taken on a mortgage loan against the individual’s age for different levels of student debt. In figure 1A, we compare individuals who attended college before age 23 without taking on debt with those who did borrow as well as with individuals who did not attend college by that age. Debt-free college attendees have a higher homeownership rate than their indebted peers at age 22, but those with debt catch and surpass the debt-free group by age 29. In figure 1B, we refine college attendees into three categories based on amount borrowed: no borrowing, less than $15,000, and more than $15,000. Students who borrow moderate amounts start off less likely to own than nonborrowers but eventually catch up. Those who borrowed the most start with the lowest homeownership rate at age 22 but are substantially more likely to be homeowners by age 32 (the median age of first home buying, according to the National Association of Realtors). From these plots one might be tempted to conclude that, at least in the medium run, higher student loan debt leads to a higher homeownership rate. Fig. 1.
Homeownership rate by age, debt level, and education. College attendance and degree attained are defined on the basis of whether individuals have attended college and obtained a degree, respectively, before age 23. Student loan debt amounts reflect the amount of federal student loans disbursed before age 23. Homeownership rate at a given age is defined as ever having taken a mortgage by that age.