Several barriers are hindering young people from entering the housing market. From a lack of affordable housing to rising interest rates and moderate income growth, prospective Millennial and Gen Z homebuyers have an uphill battle when it comes to reaching their homeownership dreams. Some young people also face further financial challenges due to student loan debt, which has sharply increased over the last several years.
According to the Education Data Initiative, the average student loan debt has increased from $18,230 in 2007 to $37,850 in 2024, marking a 108% rise. Borrowers aged 25 to 34 and 35 to 49 have the largest shares of outstanding loan debt. With 14.7 million borrowers between 25 and 34 collectively owing $485.4 billion in student loan debt and 14.4 million borrowers between 35 and 49 having a total outstanding balance of $635.7 billion, according to the U.S. Department of Education, it’s no wonder that the median age of first-time homebuyers reached an all-time high of 38 years old in 2024.
So, how much is student loan debt holding back potential homebuyers? With the average starting salary for those with a bachelor’s degree being $64,291 in 2023, Zoocasa used this figure to calculate how long it would take for a recent graduate to save for a 20% down payment on a median-priced home with and without student loan debt. Average student loan debt numbers by state were sourced from the Education Data Initiative and were used to calculate the monthly student loan payments (based on a standard 10-year repayment period and a 6.87% interest rate).
Calculations for those with and without student loan debt assume they are saving 4.4% of their salary, the personal savings rate according to the U.S. Bureau of Economic Analysis. For those without student loan debt, we calculated how much they might save by redirecting monthly student loan payments toward their down payment to reflect how debt-free individuals have higher disposable incomes. In a high-savings scenario, 100% of the redirected student loan payment was used toward their down payment. In a moderate-savings scenario, 50% of the redirected student loan payment was used toward their down payment. In a low-savings scenario, 0% of the redirected student loan payment was used toward a down payment.
Student Loan Debt Sharply Delays Ability to Save for a Down Payment
Saving for a down payment will take those with student loan debt two or three times as long as those who are debt-free. This is especially troubling considering that 30 percent of all adults take out student loans for their education, putting them at a strong disadvantage in building home equity. For instance, in New York State, a graduate without student loan debt in a high-savings scenario would only require 10.1 years to come up with the 20% down payment of $83,000, while a NY graduate with student loan debt would require 32 years.
This also points to a broader problem of financial inequality among those who have student loans and those who do not. Those without student loan debt typically benefit from generational wealth. Sallie Mae reported that families earning $150,000 or more annually were most likely to use parent income and savings to pay for college, 91%, compared to 63% of families earning less than $50,000.
Fortunately, not all student loan debt is created equally. Those living in West Virginia and Mississippi have the fastest timelines for saving for a 20% down payment with student loan debt at 11.8 and 13.1 years, respectively. Arkansas and Oklahoma graduates can save for a down payment within just over 15 years, bringing them to the median first-time homebuying age of 38, assuming that they graduated at 22 or 23 years old.
The remaining states where it would take an individual with student loan debt less than 20 years to save for a 20% down payment include Alabama (16.9), Iowa (17.8), Louisiana (18.3), North Dakota (19.1), Nebraska (19.2), and Indiana (19.6). This puts graduates of these states at just slightly above the median first-time homebuying age when they reach the down payment goal.
For debt-free individuals, there are several states where graduates can save for a down payment in under 10 years, particularly if they are able to adopt a high-savings strategy. For high-savings individuals without student loan debt, graduates in 30 states could save for a 20% down payment in less than 10 years, while those adopting a moderate-savings strategy could save for less than 10 years in eight states.
However, even some without student loan debt will still struggle to save enough money for a down payment, particularly if they face other financial limitations, like having young children or medical debt. In a low-savings scenario, an individual without student loan debt cannot save for a 20% down payment on a median-priced home in any state in the U.S. in under ten years. This puts individuals who have a low percentage of savings without student loan debt in a similar field as those with student loan debt, further highlighting the financial challenges young people face in today’s homebuying market.
The Hardest States to Save for a Down Payment With Student Loan Debt
Regardless of student loan debt, graduates in Hawaii will require a tremendously long savings timeline to afford the 20% down payment of $207,250. With a median home price of $1,036,250, homebuying in Hawaii is likely out of reach for the majority of graduates, but for those with student loan debt, it will require a whole lifetime of saving. Graduates with student loan debt will need to save for 79.9 years to afford the 20% down payment in Hawaii, while even those who are debt-free and adopting a high-savings strategy will need to save for just over 25 years.
California requires a similarly long savings timeline. Individuals with student loan debt require 68.5 years to save for the 20% down payment of $177,748, and those without student loan debt require 62 to 21 years, depending on how aggressively they save money.
Those with student loan debt will also have a difficult time saving for a down payment in Massachusetts (47.9), Washington (47.1), Colorado (44.8), and Montana (41.5). In these states, borrowers will be in their 60s before they have saved enough for a 20% down payment.
This paints a bleak picture for those with student loan debt, but considering that most people who buy a home are purchasing with a partner, these savings timelines are longer than typical if you buy with another person. This means that those with student loan debt can accelerate the time it takes to save for a down payment by purchasing a home with a partner or family member, thereby increasing their available disposable income.
What Percent of a Down Payment Could Your Student Loans Cover?
In a hypothetical world where student loan debt doesn’t exist, how could that money be redirected toward other financial pursuits? Would your student loans be enough to cover the full down payment on a home? In Mississippi and West Virginia, the answer would be yes.
In Mississippi, the typical home price is $170,810, bringing the 20% down payment to $34,162. Since the average student loan debt in Mississippi is $37,254, this would be enough to cover the entire down payment and still have a few thousand dollars left over. West Virginia has an even more affordable home price of $155,333 and a lower average student loan debt of $32,358, allowing the student loan debt to cover 100% of a down payment.
In 25 states, the average student loan debt equals at least 50% or more of the state’s 20% down payment, including in Michigan, Pennsylvania, and North Carolina. If student loan debt could be redirected toward a down payment on a house, it would make a world of difference for young people. It could mean the difference between getting into the housing market sooner, moving to a more desirable city, investing in a larger property, or having greater financial freedom. However, with the future of student loan forgiveness unclear, those with student loan debt may be continually struggling to keep up with those who are debt-free.
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