The Hidden Advantage of Student Loan Debt When Buying a Home
DS News covered the issue of student debt and the negative impact on the economic mobility of millennials and the ability to move forward with homeownership, but what if student debt could really be beneficial in making that home buying decision? A recent study by CoreLogic suggests that student loan debt may actually help Millennials’ creditworthiness.
CoreLogic reports on the effects of student loan debt on millennial tenants (especially those aged 20-34) using the ScorePLUS CoreLogic Rental Property Solutions tenant selection score. This tool measures the probability of a rental default over the next 12-18 months at the time of the rental application. It uses the applicant’s credit history from the credit bureaus as well as the specific characteristics of the rental application. The score is scaled from 200 to 800, with a higher score indicating better credit quality.
The study compared ScorePLUS scores of tenants with different amounts of student debt. It was found that in 2010 and 2015, millennials applicants who had higher student loan debt had higher average ScorePLUS scores than those with lower student loan debt.
This trend was also found to be true for tenant FICO scores, showing that applicants who had higher student loan debt had higher FICO scores, on average. Therefore, student loan debt has not prevented millennials from accessing credit despite the fact that it can delay their decision to buy a home.
“Student loans are generally classified as installment loans and count towards the calculation of the FICO score with other types of installment loans such as mortgages and auto loans and with revolving accounts such as cards credit, ”said Can Arkali, Senior Scientist, FICO. Scores. “In this context, student loans are treated like any other installment loan. The precise impact of student debt will depend on other information found on the credit bureau’s file. It is important to note that while student debt may be factored into the FICO Score, credit card debt generally has a greater influence. At the end of the day, what matters most isn’t necessarily whether the consumer has student loan debt, but whether the consumer consistently pays all of their credit obligations, including student loans, on time.
CoreLogic also compared the average ScorePLUS score of millennial applicants with student debt and no student debt. The results showed that from 2009 to 2015, millennials with student loan debt had higher ScorePLUS scores than those without student loan debt. It should be noted that applicants with student loan debts generally held university degrees corresponding to higher scores, on average, than those without a college degree. However, it has been shown that the score gap between the two groups has narrowed in recent years.
All of this to say that despite the fact that student loan debt has become the second largest consumer debt in the country, just behind the number one mortgage, and has created a significant financial burden on millennials, this report shows that ‘it doesn’t seem to prevent millennials from accessing credit; a beneficial factor for subsequent home buying decisions.
“Consumers with student loan debt can definitely get good FICO scores which in turn would help them access credit,” Arkali said. “The key aspect here is not necessarily the presence of student loan debt, but it is the consumer’s track record of responsible credit management for all obligations, including student loans. As such. , as long as consumers consistently pay all of their obligations on time, keep revolving debt to a minimum, and apply new credit wisely, they can achieve good FICO scores and access credit. “