Rental rates in the United States have risen steadily since 2006, when the percentage of lessees nationwide had neared its lowest in more than 60 years. Over the last decade, the proportion of households who rent their homes rose from 31.2% to 36.6%, and that trend shows little sign of slowing.
According to the Pew Research Center, Millennials are responsible for a bulk of this rental boom, with 65% of Americans under the age of 35 opting to rent in 2016, compared with 57% in 2006.
This increase is due in large part to an unstable housing landscape formed by the relatively recent recession. The market has recovered though, so why are Millennials still averse to buying? Some attribute their reluctance to the convenience and flexibility of renting and a desire to live in bustling downtowns, where purchase prices continue to climb.
But another important factor is the substantial financial baggage they often carry from college. Student loan debt is perhaps the main reason more and more Millennials are forgoing suburban home ownership for favor of renting within city centers.
What Student Loan Debt Has to Do With It
Although preference might play a role in Millennials’ choosing to rent instead of buy, the burden of student loan debt is an important factor for many. The Federal Reserve Bank of New York found that 11–35% of the decline in homeownership among Americans aged 28–30 between 2007 and 2015 was related to student loan debt.
Furthermore, a 2018 study from The Urban Institute revealed that 53% of Millennials polled hadn’t bought their first home because they couldn’t afford a down payment. The researchers also calculated that every 1% increase in education debt decreases the odds of owning a home by 0.15 percentage points. Thus, doubling your debt from $50,000 to $100,000 would make you 15% less likely to purchase a home.
Consider that the average graduate with a bachelor’s degree will take nearly 20 years to pay off their student loans. If they wanted to purchase a home after leaving school, they would likely need to go deeper into debt to cover the down payment.
How to Pay Off Student Debt Faster
The majority of college graduates leave school with some amount of debt, be it manageable or daunting. Whether you are looking to buy or rent the apartment of your dreams, the first step is to get those loans paid off so you have a little breathing room for your monthly living costs.. Here’s some advice for paying off your student loan debt faster:
- If your budget allows, pay more than the minimum. Your monthly loan payment depends on the repayment plan you choose, and in some cases the monthly rate your loan provider requests is less than what you can afford. So if you know you’ll be able to pay more in a particular month or year, you should pay more to reduce your payment term. Over the long term, you will save money on interest too.
- Start with the highest interest loans. If your student debt is spread across multiple loans with varying rates, pay off the loans that have the highest interest rates first. Like repaying what you owe on a high-interest credit card, you’ll save money by cleaning the slate faster. Generally speaking, private student loans have higher rates than those offered by the Department of Education. And, private student loans typically have variable interest rates which could increase and have increased over the last couple years.
- Think about refinancing your loans. Student loan refinancing is a newer option for student loan borrowers. When you refinance your loans you have the option to choose a new loan term and interest rate type. A shortened term could be a good option for borrowers looking to pay off their loans faster. And, when you refinance the interest savings could be very meaningful, especially if you are currently repaying higher interest private student loans. In my personal experience, I was able to refinance my 9% private student loans down to under 4%, a savings of over 5%!
Owning vs. Renting
There will forever be positives and negatives to owning a home.
While home ownership allows you to control your environment without the watchful eye of a landlord, this autonomy comes with the responsibility of all repairs, improvements, property taxes, and liabilities. However, whatever money you invest in your home may likely come back to you down the road through appreciation. Monthly rent payments are gone as soon as they leave your account, but mortgage payments may help establish and build equity.
If you’re looking for flexibility or freedom from the responsibility of home upkeep, renting might be your best bet. And if you are looking for shorter term rental opportunities, using a website like Faros could be a great place to start your search. For those in internship programs, consulting roles, and other short term gigs, Faros rentals can make more sense than purchasing a home or locking into a long term lease.