Since the dawn of the New Millennium, the portion of 25 and 30 year olds living with their parents has followed an unbroken, almost linear upward trajectory. A national survey found that 38 percent of 18 to 29-year olds are living in their childhood rooms. As parents across the country wonder when their recent graduates might finally move out of the house for good, economists are taking a look at what’s bringing so many millennials back home.
More than pointing to cultural causes or a lack of responsibility, a study by the Federal Reserve Bank of New York’s Consumer Credit Panel found that individuals with student loan debt are more likely to boomerang and less likely to participate in the housing market.
Before the recession, the percentage of 30-year olds with home-secured debt (a proxy for homeownership) was consistently higher among those with student loan debt than those without it. In short, the people who went to college (even if they took on debt) had higher incomes and could therefore afford to buy a house. In 2012 this pattern reversed, and for the first time in 10 years, 30-year olds without a student loan burden were more likely to have a home mortgage than those with student loan debt.
To explain this new trend Meta Brown, senior economist at the Federal Reserve Bank of New York, points to the growing student debt balances that encumber these individuals to the point that they opt not to take on more debt. Brown finds that student loan debt is now the second largest type of debt held by U.S. households after mortgages. In 2003, only 25 percent of 25-year olds had student loan debt, but the number grew to 45 percent by 2012.
On top of debt burdens, and perhaps more importantly, jobs and wages in this economic recovery have been stagnant. Lower expected earnings are probably an important factor discouraging young people from taking on home mortgages.
A recent article in the New York Times Magazine points out that “sleeping in a twin bed under some old Avril Lavigne posters is not a sign of giving up; it’s an economic plan.” The article describes a 27-year old who sees herself as one of many millennials with $80,000 in student-loan debt interfering with the hope of becoming an independent professional with a “bomb-ass job” immediately after college.
To help alleviate some of the negative side effects of student loans, Representative Tom Petri (R-Wisconsin) is proposing an income-based repayment plan for students with loans. Instead of a fixed loan repayment each month, they would pay 15 percent of their monthly income, for incomes of at least 150 percent of the poverty level.
Petri’s student loan repayment plan would allow more flexibility to include housing costs (away from their parents) in their monthly budget. For students who might be unemployed or underemployed, this plan could offer a huge relief. Petri has been advocating for income-based loan repayment for decades without much success.
Even with loan repayment plans such as this one, the larger problem of rising tuition costs will continue to burden young adults for a while.
Amidst the rampant discussion and speculation about millennials’ economic decisions, it is important to consider that the millennials are still young, and it is too early to determine their long-term impacts on housing markets. In the meantime, as young adults continue to boomerang, parents can consult the Huffington Post’s “5 Steps to Survive your Adult Child’s Return Home,” and we can hope for some progress toward income-based repayment plans to give recent graduates more financial independence.