How will GenZ home ownership be impacted by debt? When student loan payments resume in October, Gen Zers can experience surprise and confusion.
According to the Pew Research Center, Gen Z, those born between 1997 and 2012, are on course to have the highest rate of college education ever. The College Board estimates that 54% of new bachelor’s degree graduates will graduate in 2021 with debt that averages $29,100.
What effect will student debt have on the life goals of Generation Z? Can they still pursue advanced graduate degrees in light of this? Will they delay major life events like marriage and having children? Will they ever be able to purchase a home as prices continue to skyrocket?
A March 2022 Bankrate survey reported 74% of GenZers are delaying financial decisions due to student loan debt. The number one delay was buying a home.
If that happens, how will GenZers build wealth? One important note is that the oldest Gen Zers are only 27 years old in 2023.
The American goal of home ownership has long been hailed as the ideal. There are many reasons why someone might not want to buy a property, yet it is undeniable that doing so can have a positive impact on your net worth.
According to the Federal Reserve’s Survey of Consumer Finances, which was published in September 2020, the median net worth of US households is $121,700. However, there is a startling disparity in net worth between homeowners and renters.
The median net worth of American homeowners in 2019 was $255,000, compared to the $6,300 median net worth of renters. That represents a 40x difference between the two groups.
Keep in mind that with GenZ, we are talking about people born between 1996 and 2013. Interestingly enough, GenZers are tracking ahead of their parents’ homeownership rate as of an April 21, 2023 report from Redfin. When Gen Xers were 25 years old, 27% of them owned a home. Today, 30% of 25-year-olds own a home.
However, waiting to buy a home could cost the Generation Z significantly more money as prices have shot up across the country in the last five years.
Nationally, the Case-Shiller Index has seen prices go from $374,600 in Q1 2018 to $495,100 in Q2 2023, an increase of 32%.
In the Raleigh/Durham market, prices have appreciated over 45% between January 1, 2018 and January 1, 2023 according to Triangle MLS statistics.
Student Debt and GenZers
Many of these Gen Zers, like older students with debt, had hoped that President Biden’s plan for student loan forgiveness, which the Supreme Court rejected on June 30, would have eliminated up to $20,000 of their debt.
The new income-driven repayment (IDR) program under the Biden administration limits participants’ monthly payments to a maximum of 10% of their income beyond 225% of the federal poverty level. The drawback of SAVE and other IDR programs is that borrowers who have graduate school debt may be required to make payments for 20 or 25 years.
Brian’s children L-R: Shannon, Hannah, Nate and Cassidy, all part of Gen Z. Photo courtesy of Keely Nicole Photography. https://keelynicolephotography.pixieset.com/
Some Gen Zers might appeal to their employers for loan repayment assistance. In June and July 2022, the Employee Benefit Research Institute polled 250 businesses with at least 500 employees and discovered that 27% of them already provided the student loan repayment benefit, another 25% intended to do so in 2023 or 2024, and another 22% were interested in the benefit but did not yet have firm plans to provide it.
The issue is that many Gen Zers who are suffering and saddled with debt don’t work for large corporations that offer generous perks.
Darius Brockett earned a bachelor’s degree in multimedia journalism from historically Black Morgan State University in 2022. He is currently employed in a paid internship but has not yet been able to secure a regular entry-level career.
Students from HBCUs are much more likely to need loans, which keeps the racial wealth disparity alive.
Travis A. Richard, director of financial assistance at HBCU North Carolina Agricultural and Technical State University (NCA&T) says, “I think the Black community, specifically HBCUs, will feel more of the effect [of the end of the student loan moratorium] than students at other schools.”
According to Forbes staffer Jah’I Selassie, “Many Gen Zers have never had to make payments on their student debt, and many of them thought (before the Supreme Court struck down the Biden Administration’s debt forgiveness plan) they wouldn’t have to.” “The Biden Administration has taken action to lessen the burden of paying according to what you earn. However, the plan is unclear because it calls for paying for 20 or 25 years.
Form homeowners, it is hard enough to make a monthly payment for 30 years on housing. Student debt makes qualifying harder in the first place, much less paying on two loans for 20-25 years.
The bottom line is that this will impact Gen Z homeownership until the powers that be get together to help with a solution. If not, we could be in for more hedge funds owning investment property sinking the country even further into a “renter society” rather than an “ownership society.”