Much has been made about the rising level of student-loan debt. Today, outstanding student-loan debt stands at nearly $1.3 trillion. It’s natural to conclude that high student-loan debt correlates with the falling homeownership trend among millennials.

But perhaps the conclusion is unwarranted. Data gathered by Freddie Mac are inconclusive, and we’re not terribly surprised.

Student-loan debt and students aren’t homogeneous blobs. The absolute amount of the student-loan debt matters only in relationship to what the debt funded.  A student who accumulates $100,000 in student loans and graduates with a highly desirable bachelors degree in mechanical engineering will likely hit the ground running. The opportunity for high-paying employment the mechanical engineering degree produced was well worth the $100,000 in student-loan debt. The $100,000 was, therefore, a legitimate investment: It produced higher annual cash flow.

On the other hand, if the same $100,000 funded a degree that would raise annual cash flow only minimally (or not at all), then the $100,000 wouldn’t be an investment. In this case, the $100,000 really funded current consumption, which is rarely a good use of debt. 

The good news is that Freddie Mac has found that many millennials are using debt properly – to invest in degrees that raise annual cash flow. Freddie Mac found a 61% probability someone with a bachelors degree will own a home compared with 30% for someone with no degree. Better yet, Freddie Mac finds that educated young people, millenials in particular, still desire to own a home.  

Freddie Mac’s findings are yet another reason we don’t fret about today’s low homeownership rate. To the contrary, we view it as pent up demand that will lead to higher future sales.

Information provided by Jessica Regan.

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