Why Student Loans Are Crushing The Housing Recovery In 1 Chart

Tyler Durden's picture

As The WSJ reports, loan-application data show clear signs of growing student-debt burdens. Through the first half of this year, applicants with student debt carried more than $35,000 in student loans. As most people know, a key metric that mortgage underwriters use to evaluate a borrowers' ability to repay a loan is their total debt-to-income ratio.

It’s this metric that can make student loans a big negative in the loan approval process since new rules that took effect this year place greater legal liability on lenders to properly verify 'affordability' (or debt-to-income ratio). As the following chart shows, and one lender noted, "between the approved universe and the denied universe, a few hundred dollars in student loan debt can push the debt-to-income above the approved threshold."

Simply put, homeownership rates will face pressure until student borrowing slows or until mortgage investors and lenders come up with either more flexible underwriting tools or new loan products (and that never ends well).

As The Wall Street Journal reports,

Data from a top national lender shows that loan applicants with student loans aren’t being turned down more often than those without debt. But the data also show that even small changes in the size of a loan applicant’s monthly debt payments can make a big difference in whether a loan gets approved.




The loan-application data show clear signs of growing student-debt burdens. Through the first half of this year, applicants with student debt carried more than $35,000 in student loans.




A key metric that mortgage underwriters use to evaluate a borrowers’ ability to repay a loan is their total debt-to-income ratio, and it’s this metric that can make student loans a big negative in the loan approval process. New rules that took effect this year give lenders greater legal liability if they don’t properly verify a borrower’s ability to repay a mortgage. Those rules give a greater legal shield to lenders if they verify a borrower’s total debt-to-income ratio is no greater than 43%, which means borrowers with total debt that exceeds 43% of their income could put them at greater risk of being denied.


The LoanDepot data shows little difference in average debt-to-income ratios or credit scores for loans that were and weren’t funded. But it does show that, so far this year, loan applications that weren’t funded had almost $500 in monthly student loan payments, compared to around $300 in monthly payments on applications that were approved.






“Between the approved universe and the denied universe, the [borrower’s] credit is the same. The fundamental difference is a few hundred dollars in student loan debt that pushed the debt-to-income above the approved threshold,” said Anthony Hsieh, the chief executive of LoanDepot.com.


These numbers mirror the concerns of some housing analysts, who say that young adults often don’t realize how signing up for thousands of dollars of student debt could hurt their ability to borrow later. “The continual feedback that I hear from the millennials is, ‘I had no idea what I signed up for and what this meant,” said Mollie Carmichael, a principal at John Burns Real Estate Consulting, at a conference last month.




“We’re a slave to the model,” says Mr. Hsieh. Lenders throw the borrowers’ credit and income information in “and see what comes back out.”

*  *  *
The upshot is that homeownership rates will face pressure until student borrowing slows or until mortgage investors and lenders come up with either more flexible underwriting tools or new loan products... which ended so well last time...

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Cognitive Dissonance's picture

I made $9500 last month doing.......Oh wait......

My son and his betrothed recently purchased a home and her student debt weighted heavily on their credit worthiness. It was definitely taken into the overall calculation of their debt to income ratio.

JuliaS's picture

I made $9501... but then lost it all in a tragic boating accident.

DoChenRollingBearing's picture

I am interested in young people's opinions on the whole Student Loan Debacle, and how it may affect their financial situation, including decisions about buying housing.  I am 58 and not well connected with many young people.  

Anyone so inclined, please pick one (by number):

1) It's a huge mess, it will definitely affect my financial situation gravely, including housing purchase decisions.

2) It's a mess, but I will make it through, even if it's more of a problem than it was for my parents, say...

3) No, it does not matter much to me at all, all is OK...

(Obviously non-scientific, but I am curious to see how this affects responding young ZH members)

Erudite Redneck's picture

I guess they are saying to buy a house first then go back to school and load up on student loan debt because we know the college underwriters don't care how much debt you have.

NoDebt's picture

That's not a half-bad idea, if you have income.

Save_America1st's picture

it all sounds like perfect implementation of the Cloward-Piven strategy to me.

Wait until they start giving homes away to the millions of illegal invaders (sorry...undocumented Democrats).  Or giving them big time tax "credits", etc., along with their new government subsidised channel stuffed, recalled, GM vehicles.

Instant American middle-class livin' for the illegal invaders!  yee haw, "Folks". 

That's the 'Merikan dream, ain't it? 

***and if you don't think so then you're just a white raaaaaaaycist

~ signed,

Your loving mafia government

Cliff Claven Cheers's picture

What I see is the illegals using fake ssn and getting back like 3, 4 or 5 grand from the feds thru the earned income credit from kids and they use siblings and neices and nephews under 18 yrs of age.  probably have fake ssns for the kids too. I will be honest if I was born poor in mexico I would do everything I could to get mi familia to the estados unidos.


CheapBastard's picture

Since we know (from Dr Housing Bubble and ZH an dothers) that a majority of house purchases in California were 1) for cash; and 2) by Chinese Mainlanders, we can assume the crackdown by Xi on the corrupt politicans is taking its toll on the RE sector here. Looks like there's gonna ba lot fewer Chinese cash buyers in the future.

I don't think students, even the ones with less debt, are in the mood for a 30 year lead weight around their ankles anymore. Many have wised up to that "American Dream" scam. However, having a massive student loan debt hanging around your neck doesn't help either, esp since the job market for a decent paying job is dismal. 

Dick Buttkiss's picture

There is going to be a debt jubilee; count on it. Count on the consequences as well, though, as there's no such thing as a free lunch.

Save_America1st's picture

wishful or misguided thinking...but either way, no....no, there will not be any kind of "debt jubilee".  There will only be massive poverty and tyranny with a total loss of freedom and your God-given human rights.

There will be nothing else for those who are not preparing now by getting out of the system and stacking up. 

seek's picture

There will be some type of forgiveness... but I think it will have two key parts:

1) The lenders will be made whole at taxpayer expense.

2) The recipients of forgiveness will be on the hook to the gov -- either they promise to vote Dem forever, they have to do a certain number of years of community service, work a gov job in a particular area, or some other hook.

Cliff Claven Cheers's picture

Not to mention if any debt is forgiven, the amount forgiven is considered taxable and you will get a 1099c.

DoChenRollingBearing's picture

Another manifestation of the "Law of Unintended Cosnequences".

Cliff Claven Cheers's picture

A lot of people don't know if you are technically insolvent, have more debt than assets, at the time of debt forgiveness then you do not have to pay taxes on the debt forgiveness, just have to fill out a simple worksheet showing you were insolvent at the time.  I give that free advice all the time it saves some poor people a little money, as the poor broke ones are the ones getting the debt discharged for a reason.

fonzannoon's picture

it's how we are all going insolvent that concerns me, not so much what happens you arrive at that destination.

Cliff Claven Cheers's picture

Standards of living are definitely going down, kind of sad but that is what happens when you export all your jobs and dont produce anything except bombs/war, debt and financial fuckery tm as a nation.

Majestic12's picture

No, their saying become a Wall St. banker where the new shift from mortgage and derivatives fraud to Fed-backed student loans is a lot easier and cleaner...ducks in a barrel, bitchez...albeit, newly "educated" ducks.

Tijuana Donkey Show's picture

My expereince with younger people (I'm 37) is that they just have a large amount of debt ands its just part of reality. Add in come CC bills from college, and they are maxed out already. They worry about shorter term items instead of buying a house.

Cliff Claven Cheers's picture

As a tax collector I can tell you 90% of people out there have little or no savings.  It sucks getting those bank levies back with a message that says "no funds".

Yes_Questions's picture



actually as a tax collector, you have no idea what people have as "savings".


I lend very little to banks, everything else is burried in Tyler Durden's, waterfront with deep ocean access, back yard.




Cliff Claven Cheers's picture

Well I know a very small percentage of citizens actually own any precious metals.  But I hear what you are saying, you can hide cash.  But know this tax collectors and banks hate cash.  The gov hates under the counter stuff and the banks hate not getting fees like they do with every ccard transaction.  A while back banks declared war on cash in Italy becuase Italians used ccards about 50% less than the rest of Europe which meant less fees earned.  Most people love ccards, I think usage is around 70%, the gov does not need to even outlaw cash the peeps are doing it themselves.

Yes_Questions's picture



well, the dollars are not belong to us, but to those who've claimed the right to print and reap the vig.

its revelation like that that help me cut the "death and taxes" certainties down by half, for now.


and to zero, in a long enough timeline.




Da Yooper's picture

Wellllllll we all know the bankers made out fine on the student loan scam

the over priced collages & the faculty  of same made out  nicely as well


BUT our children have the ball & chain of a lifetime of debt


the new form of indentured  servitude


Thank a banker for that

Save_America1st's picture

misspelling "colleges" there was on purpose, right?  ;-) hahaha

Da Yooper's picture

I was wondering if any one would get it


+1 for youuuuuuuuuuu  SA

TungstenBars's picture

Answer: (2)


Age: mid 20's 

Double Bachelor paid off

Pursing MSc in a few and will need some debt. 


Q is hard to really analyze young ppl with as there are so many variables to consider (such as what type of degree, work ethic, financial background, connections etc. )

DoChenRollingBearing's picture

Of course, thank you.  I'm am curious to get responses, as I do not know, uh, how macro this problem is.

fonzannoon's picture

Dochen I spoke to a 25 year old today whose Dad paid for his schooling. He then declared the job market dead after 3 weeks and threw away his degree and joined daddys business (that I consult with). I went out for lunch with them today and jr ordered a chicken sandwich and daddy made him order something else because mommy was making chicken for dinner. We reviewed a clients finances after lunch and after the meeting 25yr old college grad asked me what social security was. I explained it and he asked me if all the social security money was held in one bank account and paid from that. I said "well basically yes". He then asked if we could manage the social security fund. I told him to write a letter to the treasury secretary offering to do so. Maybe we can undercut the current asset manager by a few bps to get the account. I will let you know if we get the account. But that pretty accurately describes most young kids around here.

NoDebt's picture

I don't care who you are, that's pretty damned funny right there.


fonzannoon's picture

You know how it is. i want the account but i am not going to sell myself short. normally my min is 1% but i'd go to 85bps because i figure i could make it up in volume.

DoChenRollingBearing's picture

Hey, maybe you actually can con Jack Lew & Co. into it.  Call!  It's worth a shot!

Burnbright's picture

Well Dochen,


I would be in camp #1. It is different when you have kids, and when both you and your spouse have a crap ton of debt and don't make what we should be making. 


Having actually have to come to terms with paying though how ever we have learned to live very frugally but I fear we will have to live this way for about a decade if our incomes don't increase. The only silver lining we have is that by the time my son and daughter goes to school ~3 years, my loans will be paid off in full so we will feel rich after not spending 1600 a month on day care and another 800 on my loans. But we will still have hers to deal with although they will be knocked down considerably. 

disabledvet's picture


NoDebt's picture

I know, I know.  Please stop.  I've had a little to drink tonight and I don't want to wet myself again.

I gotta get some sleep.  Have a good night, you "bankster asshole."

Escrava Isaura's picture


I was in the impression that Social Security was to pay for the Vietnam War.

tickhound's picture

Not sure that during the '30's the Vietnam war was anticipated... But a SUSTAINABLE war was sure on the horizon.

But to the ridiculous point that is this article... AS IF, college debt has ruined a so called "housing recovery." As if a "recovery" to unaffordable ridiculous prices was even required in the first place. But assuming that is the goal...

There are SO MANY ingredients to prohibit "recovery" towards a $300k one bedroom apt.

1. Automation of jobs
2. Automation has made jobs more competitive
3. Temporary "cheaper" human labor (outsourcing) until automation makes THAT cost inefficient.
4. Oversupply
5. It's a PONZI scheme like the money system itself. Last one holding the house...

And whether a college kid comes out of brick and mortar debt free or not is irrelevant. He can barely compete now, and time along with technological advancement only emerges... No matter how long we suppress it as something "not for your consumption."

I know pilots making $250 k annually who are already obsolete by way of drone. Truckers, cab drivers, the drive thru window, to airline kiosks replacing humans.

The fact that these pimps of "entrepreneur-ship" are selling you on an idea of 20th century days gone by, is actually part of the problem.

LMMFAO... As IF, bank competition for student loans will somehow influence a return of home ownership "affluence" is a bridge being sold to the dweebs living off of old boomergoon innuendo about "sweat of the brow" nonsense.

Our problems are systemic. Not symptomatic. Boomergoons, make way for the rest of us who aren't religiously glued to a system that assumes you can compete against a computer that doesn't drive an SUV to work and never calls in sick and never bitches about FAIRNESS and doesn't give a fuck when I tag your girlfriend and doesn't need two weeks paid vacation to recover from the trauma. Most boomergoons running the country don't text, so how the fuck are they capable of comprehending Orwell?

Forget the false choices we have in our elected leaders. We have false choices in everything. E: Everything e:

CheapBastard's picture

My neighbor's son mastered in some aspect of computer science in Austin and said the job market there is bleak due ot: 1) massive oversuply (as you said) not only of Merican grads but tons of Indians brought in by the tech cmpanies who pay them 50-70% of what they pay a Merikan; and 2)the economic slowdown which is finally taking its toll on the tech industry (that already cut over 48k jobs first half of 2014 not including MSFT 18k firings...ooops, excuse me, "layoffs").


The kid is bright so he is looking overseas himself and says HK looks promising. I asked him if he had considered buying a house and he looked at me like I was crazy and groaned, "NFW!"


It's a very challenging world out there for kids and any of them with common sense is not thinking about getting into 30 years of debt and being locked down in a box in one city.

tickhound's picture

30 years ago a masters in computer science got you fluency in MsDos, COBOL, and pascal. 20 years later you were in sales for WorldCom. The timing of retirement is as impeccable as is the idea that Dow 1k to 17k type appreciation is there for every generation if they just work hard enough.

"Google last 24 hours" is more current than any college curriculum.

And unintended consequences abound... As jobs become scarce the need for higher education (brick and mortar) becomes self-feeding to the point of marketing frenzy. The system is fueled by this.

The job market is changing too fast for colleges to adequately prepare young adults, let alone justify the tuition. But it's institutionalized to the point where it's become a pay to play tax. It's a fee for a license. And at a time when information is more free and abundant than any other time in human history.

Milton Waddams's picture

I know a couple of younger kids using their income to invest in their 401K or IRA instead of paying down either credit card debt or student loans. I try to advise them to do otherwise but they are insistent. My typical response is: learn math.

skipjack's picture

Except that retirement accounts are protected in bankruptcy. OK,it is possible but not likely to BK out of student loans, but I say, load up on CC debt, pay off the student loans from the CCs, then BK on the bank CCs. It's only fair.

Escrava Isaura's picture

Great that you asked these questions, DoChen.

Not sure if Zero Hedge attracts this young crowd. Anyway, remember reading some website by young people, and it was pretty bad, accordingly to them.

I think I might have it saved somewhere. If I find, I will link this thread there.

Killtruck's picture

Perhaps not as "young" as you are looking for, but being late 20's, I will answer with #3.

It doesn't matter much to me ONLY because I worked the entire time I was in college - part time jobs with a full course load for four years. I also went to one of the cheaper private schools, trying to minimize the cost but still retaining the private school mentality. Graduated without debt, found a good job in my field, and rented an apartment for a few years.

Not rich today by any means, but I'm very happy. Well, I WAS happy - before my boating accident, I had a respectable stack of hard assets. Now those are all gone. Terrible loss.

Postal's picture

The Force is strong with this one...

seek's picture

Eldest daughter is in #3 camp -- she got wind of how student loans were fucking over kids in her senior year of high school, so opted to go with CC and self-fund tuition instead. I was surprised when she called me up after a high school personal finance class to confirm student loan debt wasn't dischargable in bankruptcy -- that was the big eye opener for her, and she immediately recognized student loan = slavery.

As word gets out about the scam that student loans are, I expect to see more of this, and really desperate recrutiing campaigns by the schools before it all implodes.

Wait What's picture

most 20-somethings I know are just waiting for their baby-boomer mom and dad to die so they can have their houses.

no joke. this actually came up in conversation recently.

fortunately I've fallen into the 3) category, so I just listen to my friends' problems, take a sip of my 18 yr old scotch, nod empathetically, and turn my head solemnly toward the city and ocean sunset that lie below.

there are between 50-60 million americans who in 10 yrs or so will have greater need for caskets than houses, so who gets all that property? a lot of debt loaded millenials are betting it will be them.

Majestic12's picture

It might as well be propery on the moon (my favorite vacation spot) because values will soon be falling off the vast crater cliff of the shrinking population chohort demand, with shrinking earning capacity, shrinking problem solving skills, and shrinking tolerance for each other...[sip] ahh, you are definitley right about the 18 year old single malt....about those caskets....I forecast a just a "few" more than 50-60 million....

Lostinfortwalton's picture

Try making nursing home payments for a few years...."and, it's gone!"

Government needs you to pay taxes's picture

The logical conclusion is to redefine your desired adult lifestyle to emphasize mobility/freedom over 'lotsa depreciating/taxable material possessions'.  The current paradigm is unsustainable, and there are huge changes coming in the areas of healthcare, education, and (hopefully) national government.  I would advise the young men and women to continue pursuing their education, which should include a useful foreign language (spoken by >1 billion worldwide) and a trade (welding, plumbing, electrician work, mechanic, etc).  Dont worry too much about nominal student debt levels.  Hyperinflation (or something worse like a world war) is coming, and it will be a life-changer/ender for everyone.  In other words, keep your pecker hard and your powder dry, cuz the worm will turn.

oneshotklink's picture

(1) and I'm making well over 100k per year. Obamacare eliminated nongovernment loan consolidation, so I am paying about 8% apr (which accrues daily) to the fed govt instead of the 4.5% I was paying to sallie Mae on my negligible undergrad loans. Last time I calculated, I was paying over $60 PER DAY in interest alone on my and my wife's law school loans. All after tax dollars. Totally crippling.

P.s. The law changed while I was in school so the amount I expected to be paying after graduation about doubled thanks to that little bitch in the White House. I feel for little Barry though, as he never had a dad. And It shows.

oneshotklink's picture

(1) and I'm making well over 100k per year. Obamacare eliminated nongovernment loan consolidation, so I am paying about 8% apr (which accrues daily) to the fed govt instead of the 4.5% I was paying to sallie Mae on my negligible undergrad loans. Last time I calculated, I was paying over $60 PER DAY in interest alone on my and my wife's law school loans. All after tax dollars. Totally crippling.

P.s. The law changed while I was in school so the amount I expected to be paying after graduation about doubled thanks to that little bitch in the White House. I feel for little Barry though, as he never had a dad. And It shows.