The Change in Impact of Education Debt on Graduates\u27 Home Equity Post 2008 Recession

Abstract

Home purchases are the pinnacle of the American Dream and have a large impact on the American economy as a whole. With rising tuition costs and a greater necessity for a post-secondary degree, the student debt balance in the United States has swelled to over $1 trillion. Graduating with education debt can create a huge financial burden and force graduates to postpone big-ticket purchases like houses, particularly in tough economic times. In this paper, I examine the change in the effect of student loans on college graduates’ likelihood to purchase homes after the 2008 financial crisis. Using data from the 2007 and 2010 Survey of Consumer Finance reports, I apply probit and linear probability regression models to examine the effect of education loan dollar value on graduates’ likelihood of having home equity. The results are statistically significant and in 2010, the effect of student debt decreases by approximately five percentage points for every$10,000 increase in loans. The findings provide evidence to support the research hypothesis that the effect of student debt on home purchases became increasingly negative post-recession