More young renters may finally be able to purchase a home following President Biden’s announcement of student debt forgiveness.
According to the White House, graduates earning less than $125,000 per year are eligible to have up to $10,000 in federal student loans canceled – or up to $20,000 if they were Pell Grant recipients. The plan also caps monthly repayments at 5% of discretionary income.
Biden Student Debt Relief Program
Through the Biden student debt relief program, current and future college grads can expect to save more than $1,000 a year on average on student loan repayments. That’s extra money that can now be saved for a down payment on a home. Additionally, improved debt-to-income ratios could help more prospective homebuyers qualify for mortgages.
Millennials who delayed or gave up on homeownership because of the unaffordable housing market stand to benefit. In a survey by RocketMortgage, 70% of Millennial students said that, should their student debt be forgiven, they could anticipate buying their first home in one to three years instead of their initial timeline of four to nine years.
However, record-high mortgage rates and home prices remain obstacles even for people who aren’t burdened with debt. The big winners could be landlords: those now making smaller student loan repayments can afford higher rents, and some may relocate to more expensive areas.
And Millennials who move out of cheaper rental properties could create affordable vacancies for Generation Z, enabling them to finally leave the nest, both of which would create profitable new opportunities within the single-family rental market.
But at an estimated cost of over $400 billion, the true effect of the student debt forgiveness has been seen by some economists as “largely a wash” in the market. Adding billions to the US’s debt could continue to increase inflation instead, which could also put homes and rent further out of reach.
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