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Student debt hinders millennial homeownership (curbed.com)
43 points by aaronbrethorst 37 days ago | hide | past | web | favorite | 62 comments



So the three largest problems for millenials:

- large and increasing cost of housing due to artificial restrictions of housing through zoning and housing permitting

- large and increasing cost of education due to subsidized education with no cost control of the product, leading to bloat in administration and unnecessary spending at universities [cost increase is both monetary and in time due to grade inflation]

- opportunities are increasingly centered in jobs and cities where the two previous problems are aggravated the most

Neither of these are productive uses of the amount of debt millenials accrue for this purpose.

University education is mostly signaling that you are conscientious, smart enough and execute an imposed set of tasks over an extended period of time [1]. The book in the link argue although an individual benefit from graduating at a good college the society as a whole does not get extra value from more people needing a college education to get a job. Maybe we could get a cheaper signal for this?

When buying a home housing has the main purpose of sheltering a family. Short-term increases in house prices lead to a decline in births among non-owners and a net increase among owners [2]. With decreasing birth rates that is already below replacement in the west making it impossible for most to buy and making rent crazy high seem like an incredibly short sighted idea.

[1] https://www.amazon.com/Case-against-Education-System-Waste/d...

[2] https://www.nber.org/papers/w17485

Edit: added extra info on education having a time cost. This is Peter Thiels long-standing point.


Exclusionary zoning and high university administrative costs are basically a transfer of wealth from millennials to baby boomers.


The student loan bonds probably benefit the ones owning them the most, which is not baby boomers in general. Maybe retirement funds buy them so they indirectly benefit?

Exclusionary zoning benefit those that own housing the most, so it does benefit a bunch of baby boomers. However, those with leverage of existing rental units seem to benefit the most because they gain leverage through rental income in the same market as they buy new units in so they can slowly gain new low-risk wealth over time without changing their cost/revenue balance.

In general low-risk investments such as student loan bonds and rental properties should be low-margin. However, due to regulations that stop the market from doing its thing that is not the case.


I believe the "baby boomer" cohort in the US owns the majority of the wealth, probably just because of the age and size of it. They have the voting and economic power to control society. They should be careful not to create a large angry cohort of young people as they head off to retirement, leave the power centers, but still draw on the resources of others. So far they have done a poor job of that. Maybe universal surveillance, AI, and robot soldiers can prevent the younger generations from clawing back some of the wealth extracted from them, who knows.


> large and increasing cost of education due to subsidized education with no cost control of the product, leading to bloat in administration and unnecessary spending at universities [cost increase is both monetary and in time due to grade inflation]

One could replace "education" with "health care" and make another valid important point.


Millenials are largely healthy on average due to their youth which is why I didn't include that. However, for the ones that are sick that is definitely a huge problem.


A key thing I look at in graduates is what they did at university. I'm less concerned if they flunked their course just before finals, the things I'm looking for are

1) Independent living -- did they go to university a long way from where they lived? If they treated it as 3 more years of school, they've missed a major point. I'm not going to be parenting them as they are dropped into the real world at the deep end. 2) Extra curricular activities at uni -- did they do student radio? Or theatre? Or music? This indicates they aren't just doing what they think is required of them, but have the ability to think for themselves.

Kids straight out of school are a massive risk, not only can they do the job, but can adapt to an adult world? Graduates that just did 3 more years of school are the same risk.

Kids that dropped out at 16 and worked in a garage for a few years and solved some problems the business had? Brilliant.


Is this for a startup?

A large corporation might tilt more towards someone that does an assigned task on time regardless of how mind-numbing it is, and even when they have to invent the instructions as they go along.


Depends on the person hiring and how much flexibility they have (and how skilled the hiring department is at getting past any corporate pre-filtering from HR)


I don't disagree on your 2nd and 3rd points, but the first point could use a [citation needed]. I live in SV, so I certainly understand there are areas with "artificial restrictions", but I'm not sure it's a major factor, let alone the primary factor. (I mean, yes, if we stacked the entire Peninsula with wall-to-wall tiny houses, the problem would be "solved", but that doesn't prove that this would happen on its own even without restrictive zoning).

Income inequality and the falling prices, in real terms, of virtually everything the upper-middle-class-and-above need to live their lives, means there is more spare money to allocate towards housing, bidding housing costs up.

In a world where food and clothing is cheaper than ever to "most of us", why not pay those rising costs, thus bidding prices ever higher?


There's so much room between the present built environment and "stacking the entire Peninsula with wall-to-wall tiny houses" - that's a false dichotomy that prevents taking any action. Supply and demand are both part of the solution - you're correct that in a desirable area like the Bay Area with wealthy industries, people will have more money to spend on housing. But increasing housing construction by 4x would make a huge difference but still mean fewer new units per year than San Antonio.


I'm not presenting it as a false dichotomy between "do nothing" and "stack the entire Peninsula with wall-to-wall tiny houses". I'm presenting the latter option as an example that the most extreme, non-realistic course of action would not occur even absent the regulatory environment.

Obviously every additional unit places a very slight downward pressure on housing prices, I just disagree that regulation is a primary factor at play here.


I think you're also missing the fact real estate as an asset class has more value as an investment vehicle v(holder of value) than it does as providing the utility/value it was designed for.

Furthermore, low interest rates has increased the cost of homes as well and increased the amount of money swimming around looking for a home.


Investment in housing and low interest rates would actually spur new construction and thus reduce rents if the housing supply were more elastic. It is the fact that supply is inelastic in a few cities that makes investment harmful for homebuyers.


And technically the market has responded by the plethora of low cost housing all over the city.

Tents.


We need to add some nuance to the way we talk about student debt.

My wife and I had $120,000 in student loans, which we were fortunately able to pay it off in 36 months. Granted, we didn’t do much else.

University degreees are not created equal. Having six figures of debt isn’t a problem if you have a reasonable expectation to have six figures of income.

On the other hand, my cousin went to a private liberal arts college for a $90,000 Communications degree before returning to RadioShack. He may never pay his loans off.

Student loans become a problem when they are used to subsidize high-tuition schools teaching skills which don’t connect to a wage-premium.


I think it is worthwhile to know that a liberal arts degree when done right teach you how to think, and therefore how to effectively formulate problems and evaluate solutions.

A classic liberal arts education is therefore generate reliable value for the holder in the same way as the sciences, because you would be a perfect fit for complex jobs in running our government and corporations.

Professor Drout makes a great argument for this in one of my favorite books that made me as a physicist and computer science PhD finally appreciate the value of the liberal arts [1].

The problem is that many of our universities have abdicated their responsibility to teach a liberal arts curriculum that teaches people how to think, and are instead teaching people what to think in a very political curriculum. Employers recognize this, and therefore we see the decreasing value of liberal arts degrees in the market.

Learning how to become an effective activist is not worth $90k+ in loans towards your future self.

[1] https://www.amazon.com/Modern-Scholar-Think-Liberal-Enduring...


I think the problem is many people who choose liberal arts majors do it with the mindset of "this is an easy major, I'll be able to graduate with a high GPA and minimum effort". In STEM even if you pick the easiest classes, it won't be as easy. Those are the "lemons" of liberal arts degree holders. They aren't cut for college level difficulty but still want the signaling of it.

And one problem is that universities seem ok with this, There's a ton of discussions here about how those people should not go to college, or go to community college etc. One could argue that it's not the university's fault, that the students, should make reasonable adult choices.

For those who go into the field to truly learn, they can indeed get a ton of very useful knowledge, but I'd argue they're a minority, and they'll have a harder time to succeed due to all the "lemons".


Yep, the hidden fact of student loans is that the ones struggling to pay it off most often aren't the ones with $100k+ in student loans.

Those usually graduated from a mid to top tier school with a marketable degree, and won't have many issues paying the loans.

The ones struggling usually have lower amounts, and got leo-marketability degrees from for-profit or low-tier schools.

http://fortune.com/2015/12/01/student-loan-delinquent/

https://equitablegrowth.org/an-introduction-to-the-geography...

But this doesn't mean that there isn't a problem. There is one, it is massive, and it is bad for society.


>Student loans become a problem when they are used to subsidize high-tuition schools teaching skills which don’t connect to a wage-premium.

Only 5.4% of Americans make over $100k. I believe 20% of students graduate with over $100k in student loans. The problem is the Pandora’s box and unwillingness to admit we tried an experiment and it failed, it’s great we wanted to guarantee loans to pay for secondary education, but we have to admit the American economy sucks and overwhelmingly can’t support this student debt (good luck finding a politician who will say that, much less be able to take any action to remove guaranteed student loans.

Other interesting facts:

More Americans hold student loan debt than the population of over 200 countries

Over 7 million (>2%) of the U.S. population has defaulted on their student loans

Student loan debt is the second highest form of debt in the U.S., second only to mortgages

Almost 30% student loan borrowers move back in with their parents after graduation

Over 34% of borrowers have delayed starting a family because of their debt

Over 47% of borrowers have delayed buying a car because of their debt

Over 73% of borrowers have delayed saving for retirement because of their debt

Around 63% of borrowers have delayed buying a home because of their debt

Almost 28% borrowers have delayed getting married because of their debt


Those are some nice straight up statistics. To me, a more accurate breakdown would show the degree type, avg cost to obtain said degree, and average income for people who hold the degree 1 year, 5 years and 10 years after graduation. Also how many people with that degree actually end up working in the field that they hold the degree for. Some fields pay, and will always pay, a lot more than others. Some fields actually have marketability with demand, and will pay more. Peoples actual choices play a larger role than most are usually willing to admit. It's easier to just say "I am x in debt and don't make enough to ever pay it off and it's the systems fault," rather than "I chose a field where there isn't high demand, or isn't worth enough in the marketplace to make enough money to pay off my obligations and have a comfortable life."


If degree marketability is the sole point of higher education then let's stop calling them universities and start calling them what we intend them to be, trade schools.

I'd hate to think that the ideal American higher education system is one where only the idle rich get to study what they want or are interested in.


No it's not the sole point. Just a practical one that most consumers exercise when making a consumer decision on what to buy and the cost/benefit analysis of its practicality. It seems a lot of people don't actually do that when making one of the biggest decisions of their lives, and this part has nothing to do with the actual teachings in college. That should be determined before you even apply. A lot of people do in fact choose to go into fields where the pay is not that great. That's perfectly fine if someone is willing to accept that, but if it doesn't pay enough to meet your obligations and have enough left over for you to be comfortable and have the lifestyle you're striving for, then that's also a decision that should be accepted. It was a choice.

If you buy a truck that gets 13mpg, and you get mad at how expensive gas is costing you every time it increases and how fast your vehicle goes through it, should we get mad at the truck manufacturer or the company that gave you the loan for your decision, that could have been fairly accurately determined beforehand with a bit of research and critical thinking (gas prices will rise in the future)?

I pushed my daughters very hard to research what they wanted to do with their lives, and made them think hard about the upcoming automation revolution. A great number of modern day jobs are going to just go away and won't be directly replaceable. People should be aware of that and go into fields that aren't as easily automated if they want to do well in the future. We all know self driving cars/trucks are coming, and fairly soon. Would you encourage someone to go into the trucking industry today if they are young and figuring out what they want to do with the rest of their lives?


> we have to admit the American economy sucks

In what way? I think it's working exactly as intended, to siphon wealth off to the ruling class. Spending is like a gas, it will expand to fit its constraints.

Those stats are not great for borrowers, but they're great for lenders. One take is to blame the lenders -- they lend too much, chaining the borrowers to debt. The other take is to blame the debtors, reframing those stats as, e.g., "Over 34% of borrowers have delayed starting a family because they preferred spending borrowed money."

The truth is of course somewhere in the middle: debt is a wonderful leverage tool when used properly, but lenders will gladly give you more than enough rope to hang yourself. In today's world the only one looking out for you is you.

(for the sake of this comment, I'm talking about non-medical debt)


>I think it's working exactly as intended, to siphon wealth off to the ruling class.

Intended according to who? The founders? The central banks? Creditors?

It’s all an experiment. Capitalism is. Consumer debt is. To think anyone intends the economy to work as it is (government shut down, debt across the board at record highs, defaults at record highs, economic bubbles, mass fraud, etc...) is pretty crazy...but that’s my point, good luck finding a politician to speak that way, much less being able to mobilize the government to correct these issues.

It’s pretty easy to get caught up in the idea it’s working for you. I take it youre not one of the federal government employees living paycheck to paycheck as a political pawn? Is that the way the economy is really intended to work?


Intended by the people with the power to influence it, obviously.

We are in the lowest default rate period since the Great Recession, I don’t know where you’re getting this sky-is-falling take on the economy.


But do not disregard the other advantages you may have to help you pay off that debt in 3 years: being married so you can share costs access to well paying jobs presumably direct or indirect family support (e.g. being able to live with family cheaply so your income can be directed to debt payments)

We have told people, particularly people with low income or disadvantaged backgrounds, that college is the ticket to a high paying job. And then for-profit and other sketchy institutions prey on these people to get them to take out loans for ow value degrees. That probably aren't even completed.

The chapter in "Weapons of Math Destruction" on how for-profit colleges use "big data" to prey on low income people is terrifying. They look for people getting government assistance and other indicators of "struggle" and use facebook retargeting to bombard them with ads on why they need to go to college at a for profit institution.

You kind a have to luck out on a lot of parameters to easily pay off student loan debt. Even Barack Obama couldn't pay off his student loan debt until recently.


the elephant in the room is that we should not provide loans for all educations. the other consideration is the when the government provides the loans it should restrict how much each course credit should cost, how many credits are needed for the degree and which classes those credits can comprise of. This would also put limits onto the cost of required course materials, namely text books and the like.

many don't seem to take issue the government setting rates with hospitals and considering the costs involved it should do so with college level education.

many colleges would trip over themselves to offer degree programs fitting within the limits provided. Yes there will be moans and groans, end of the world declarations, but the free ride on the backs of students who have the federal loan programs to fall back onto needs to stop.


>A communications degree will allow you to build awareness of how to communicate information to diverse audiences effectively, with specific business goals in mind. Strong communication skills are invaluable in order to provide meaning and resonance to the companies’ aims, and to present the company and its services or products in the best (and clearest) possible way to consumers, clients and colleagues.

https://www.topuniversities.com/student-info/careers-advice/...

I don't know, maybe he is doing what a communications degree'd individual should be and he just vastly underpaid? Or the degree is overpriced?

Why are we blaming the 18 year old in this scenario?? Isn't this why parents are helicoptering their kids nowadays so that a simple choice like this doesn't doom them during their formative years?


This is the commodification of education in a nutshell.

We treat degrees that don't award high-paying jobs as a disease worth stomping out. We see this already with people demonizing those who choose to go into the soft sciences or more art-inclined degrees. This isn't to say that there aren't degrees that are a scam, but rather that we need to be careful if we solely value education for how valuable the careers are, rather than valuing education and the societal benefits it grants.


The crazy cost of real estate is far more hindering IMO. Average student around here is 25k. Average house (detached) price is over 1.3 million. Toronto area, for reference.


Home ownership isn't realistic in every market, especially ones in which there's such huge demand. The easy answer to this is living somewhere with low real estate costs (e.g. the Midwest US) instead of massively over-saturated markets.


Sure, the easy answer is to save up a few grand (when you don't have money to begin with) to move into an area where there are job little opportunities. That's easy, even easier if you have a partner or a family.

The #1 reason why in-demand markets are that way is jobs. Moving out of these areas is not an easy answer.


There's plenty of opportunities around that pay enough to afford real estate. They won't be as sexy, pay as well as the coasts (the lower COL helps to offset this), or likely to be working on cutting edge problems, so if you're looking for that kind of work you're not gonna have much luck. To say there's nothing anywhere outside of major cities at all is misinformed.


A nice middle ground is living in commute distance to work. There are lots of way more affordable options in the SFBA -- Morgan Hill/Gilroy south, Petaluma/Santa Rosa north, Pleasant Hill/Antioch/Pittsburgh east. Get a cheap used EV and take the HOV lane, or ride bart/caltrain.


Or look for a vanpool or carpool.


Places with low real estate costs tend to have fewer and lower-paying jobs.

Part of me would love to move back to KY where I'm from, but where would I work? That's the reason I left in the first place, no good jobs.


The places that pop into mind are Lexmark, Big Ass Fans, Lockheed Martin, General Dynamics, and Johnson Controls. There are lots of smallish places doing factory automation, particularly near the Toyota factory.

Salary seldom keeps up with real estate costs. The real estate cost difference can be a factor of 10, but you won't see that difference for salary.

Lots of low-cost areas will specialize in an industry. You shouldn't expect to pick a random low-cost area and find the industry you want, but the industry you want is probably in at least one low-cost area. Find that area, move there, and do well in life.


> Average house (detached) price is over 1.3 million.

The popularity of wanting to live in Toronto makes detached housing for everyone who wants it untenable. There just isn't enough space.


The popularity of wanting to live in Toronto makes detached housing for everyone who wants it untenable. There just isn't enough space.

There is plenty of "space;" Toronto, like many municipalities, just makes increasing the housing supply illegal: https://www.vox.com/policy-and-politics/2018/9/24/17896482/b.... When supply is restricted in the face of rising demand, prices rise. This is what existing owners want: http://cityobservatory.org/homevoters-v-the-growth-machine/ and that's why we're getting it. Baby boomers are, sometimes literally, forcing their own children out of the city.


That's a problem for sure, but my point is that regardless is you cannot physically increasing the housing supply of _singly detached houses_ in Toronto or similar cities, regardless of policy.


Yeah, a lot of articles and studies quote single family detached homes, while referring to high density, high demand areas where those things basically don't exist. The cost of a 2 bedroom single family in Manhattan is not a very interesting metric.


Similar here in Boston. Your average two-bedroom apartment/condo costs... what was it, $350k-$500k, depending on the area.

YIMBY or bust.


We have a strong YIMBY movement going in Boulder, but I've never seen a model based estimate of how many additional housing units would be necessary to actually lower the cost of individual ownership.


You don't need a model; you have a market. Remove height limits and parking minimums and we will fairly rapidly find out how many units are necessary to bring rents in line with cost of construction.


That doesn't just increase supply. It also reduces demand.

There may be a billion people who would move there now if they could afford it. The additional units required to get things into the affordable price range would degrade the experience though, causing most people to reject the result.

So what this accomplishes is the destruction of a desirable place to be. The smaller buildings and easier parking are inherently part of the desirability. Even the exclusiveness itself is part of the desirability.


Perhaps getting rid of height limits entirely isn't a great idea, but an overall height limit that allows building up to one story taller than the buildings next to the one you are building seems reasonable and would allow a city to grow up gradually. As far as desirability--what makes European cities desirable and charming? I'm certain it is NOT ample parking or one story bungalows with huge yards.


>The smaller buildings and easier parking are inherently part of the desirability. Even the exclusiveness itself is part of the desirability.

For you, maybe.


I've seen plenty of sophisticated models that developers use to answer this type of question. Why can't we have the same level of effort applied to the problem of housing accessibility?


If you want to buy a home and can't where you are, change where you are!

I know it sounds obvious, but if you haven't looked into it in the past year, I think you'll find it's easier now more than ever to manage the (admittedly many) logistics of finding a new area for yourself and your family. Tons of tools for each aspect.


Averages hide alot. Most of my friends who went to private colleges (graduation 1998-2002) left with ~$100k in student loans. At that time, "sticker price" was $25-30k.

I was fortunate to attend a state school before the tuition exploded.


But why would you compare a student salary with the most expensive type of property you can find?


At the time, I was mad at my parents for forcing me to go to my public in state college instead of going out of state to a UC or USC. Now I’m so relieved that I have no debt from undergrad and a small low interest fed loan for my grad degree.


Source study minus the regurgitation:

https://www.federalreserve.gov/publications/files/consumer-c...

And a better summary, if you'd prefer an article:

https://www.bloomberg.com/news/articles/2019-01-16/high-stud...


Anecdotal, but I don't know anyone my age that has a house that didn't get their college paid for or had significant down payment help from their parents.

Every one else has started to view the world with pinko-commie lenses. I'm genuinely amused at the confusion this causes to the people I talk to who are at the end of their careers. This really ought to be scaring the upper 20%, but I guess it's hard to feel the heat when the system is working for you.


I'm 27,

I bought my house when I was 22. I received no down payment assistance from my parents, in fact my parents were actively stealing money from me. I also had a boatload of student debt, still do.

Now what I did do, was take advantage of government programs that were and still are in place to qualify for an FHA backed mortgage loan.

My mortgage is $640/mo roughly while my peers see their rent increase massively year over year..


Yeah, I had no help with a down payment nor college payment help, and bought around the same age. And I know plenty others young couples and singles who have done the same thing.

I’m guessing the effect the grandparent is seing is in high cost of living, coastal cities. It’s certainly not the norm across the US.


Not to pile on, but I also managed to buy a house at 22 after paying off my student loans, and I'm not alone in it by any stretch where I am.

Pet theory with zero evidence attempted : Geography really does affect one's filter bubble / worldview more than we've explored.

Edit: with no down payment or student loan assistance from guardians.


I'd be curious to know if anyone who is posting about buying a house without parental assistance in their 20's did so in the bay area.

It would have been useful if the parent comment had specified his/her age and location, since otherwise we get a smattering of data points that can neither confirm no reject the original anecdotal observation.


Wanted to follow back up on my original comment in this thread since to add some data since I can't seem to edit it now. I didn't do this in the Bay Area, I did this in the Southern U.S.


Makes sense! Things like FHA-backed loans are a much more effective tool in less-expensive regions. When the cost of a 3bdrm/2ba is $1.5M (roughly the current cost for a suburb outside Palo Alto), the maximum FHA loan max only gets you halfway there.


I see much of the same thing. All of my neighbors who bought homes before turning 35 grew up in Atherton and presumably had help from their parents (or at the least, didn't have any student debt).




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