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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Canoe Driver's picture

Unless you have a secondary profession, as in you are an engineer, or a physician, then you would have to be quite a maroon to go to law school in the first place. This has been the case for well over 20 years.

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.

Canoe Driver's picture

Between the student loan debacle and the health care disaster, the situation is worse than you account for in your three choices, DoChen. This is the wholesale abandonment of the young, which has been adjudged necessary by TPTB in nearly all western countries. And these are the same people who pretend to regard childbirth as sacred. There are no more house purchase decisions by the young, there are house purchase attempts, some of which stick for a while. Equity is never built, though it may be inherited, which is why the upper classes think they are immune.


Two recent law graduates walking in the Rue Royale several days ago asked me to open a bottle of Maker's Mark for them. These girls were drinking on the street, from a paper bag. I tore off that pretentious wax seal, opened the bottle, took a swig, passed it to the blonde, and told them I was a lawyer. They asked me about employment prospects, and I told them the truth. Then I added, "Now, if you were topless dancers, and lawyers and the same time, that would be something."

ebworthen's picture

My suggestions:


  1. Eternal forebearance.
  2. Debt jubilee.
  3. U.S. Default.
  4. All three of the above.

If AIG, Bear Stearns, Coutrywide, GM, Citi, etc. - don't have to pay their bills - why should students?

Ricardo Pobre's picture


I'm carrying some student loan debt, but decided to purchase a house a couple years ago.  Shorting the USD via a 30-year fixed rate 3.75% mortgage seemed like a good bet at the time.   

Mermaid Seamstress's picture

I'm a 2.   I went to Midwest private university from 99-2004 and racked up a lot of student loan debt. It took me 6 months to find a full time job which was right as the first bill came due. I had about 47K in loans. Thru consolidation and kicking the loan term out to 30 years I was able to survive my first several years. I'm 35 now and I have 20 more years left to pay. I have the amount down to 32K, and had to suspend payments a few times.  In 2008 I saw my opportunity to buy a house. My mortgage is modestly higher than rent. The utilities kill me. Home repairs are racking up. I ignore it for now. I've had a couple roommates but nothing constant. I have mixed feelings, and would feel nothing if my home burned to the ground. I hate the debt I carry. I'm getting married in 6 months and I can't afford anymore debt. Neither can my boyfriend. Soon we have to make the decision whether or not to have kids. As a white, educated couple you'd think this would be a no brainer. The reality of our debt, unstable job market and stress...I'll be lucky to have a retarded down's syndrome baby. Sometimes on my bus ride into work I dream of quitting my job, going on Section 8, and living off SNAP benefits. The welfare loving illegals I know have it better than I do. Low stress too. I continue on with my life, but I deeply believe it's for nothing. A zero sum game. This is the best America can do.

Escrava Isaura's picture

Make student loans transferable to credit card. Then, default on it!

DoChenRollingBearing's picture

I'm not sure if that would be legal, you cannot easily escape student loan debt by bankruptcy, for example.


chumbawamba may have had it right years ago:

Max out your credit card buying gold, then default!

DoChenRollingBearing's picture

Introduce yourself to him, then.  He's often in ZH Chat (bottom right), especially in the evening.

He's an interesting guy!  <--- That's a tease & a warning, LOL...

Escrava Isaura's picture

I am chumbawamba

I know the character. Saved couple great posts by him.

Cliff Claven Cheers's picture

Only option is to get a degree and emigrate to another country.  Apply for political assylum under the fact that US has too much debt, odious debt a form of involuntary slavery.

DoChenRollingBearing's picture

Only if you leave with a LARGE amount of money that appears clean (say over $100,000).  But, Peru ain't buying that. *



* Unless it's more like $250,000...

Cliff Claven Cheers's picture

Actually now that I think about it, if the IRS has enough authority to break swiss banking privacy, established for hundreds of years, there probably is no where in the world to hide from Uncle Sam.

Escrava Isaura's picture


So, what's your view on gold purchased with credit card.... say, if the government double the tax on gold profits?

Cliff Claven Cheers's picture

They don't train me on tax rules just how to extract money from people and businesses.

fonzannoon's picture

Cliff I wish you stuck with being a mailman.

fonzannoon's picture

yes I realize that. But even within that framework there seems to be some lesser evils

Cliff Claven Cheers's picture

I hear you some tax collectors are real dicks.  But think about it like this, you pay your taxes and I pay mine so why should anyone get away with not paying theirs.   BTW I am pretty easy going I set up a lot of pay plans and I refund 90% of penalty requests, I am kind of a softie.

fonzannoon's picture

I hear you, I just hope you go after that teacher tutoring for cash during the summer as much as you go after that biz man. Or better yet somehow get the fsa to ante in.

Cliff Claven Cheers's picture

That cash stuff is tough.  It is amazing the data sharing that goes on.  My state gets info from customs on imports and its reported value then we send a sales tax bill if the purchase does not get reported to us.  I had a guy buy some stuff for around 5k from Taiwan and he got a nice surprise sales tax bill from us.  Also we can get access to all ccard purchases from any merchant in our state to verify purchases, etc.   Also the old trick of purchasing a used car and getting the seller to write a bill of sale for less than the purchase price is coming to an end.  We now are auditing them and if the fair market value is more than the reported sales price we send them a bill for the difference. 

Central Bankster's picture

Well that is bullshit and you should be ashamed of yourself for doing that.  The value of anything is what someone pays for it, not what someone says its worth.  This is how we get these rediculous property taxes on home values that only appreciate because some bureaucrat says so.  Just because somebody *might* have lied about their taxes, doesn't give you the right to fuck them over.  Especially, considering the fact that people who take "below market" prices probably do it because they are having financial problems and/or their car is a lemon.  The onus should be on you to prove it.  If you can't, the law needs to be changed or the tax eliminated, period.

Cliff Claven Cheers's picture

That is rich coming from a Central Banker.  It is what it is..  Vote for some hope and change.  Its like I tell all the complainers, contact your state legislator and attend the rule making hearings if you want to change things.  Most people don't care until it impacts them financially.


I should add thay anyone can appeal an audit and verify if a vehicle, etc is worth less.  They just have to prove it.  Believe it or not a lot of people ask to have a lower bill of sale to avoid sales taxes.

Escrava Isaura's picture

I meant, collect taxes on the gold profits, say when the gold goes to $5/$10 thousand dollars an ounce, because US defaulted on its debt.

Good businesses to go after, I would think.

logicalman's picture

My son worked his ass off to pay for chef's college before he signed up.

He's now a qualified chef and owns some Au & Ag

He has no debt.

He's 20


DoChenRollingBearing's picture

Our daughter's bf worked as an engineer, paid off HIS student debt (big debt!) in something like 2 and 1/2 years.  Now he feeds at the trough at .gov with a nice job...

Which is OK w/ me!  :)

Uber Vandal's picture

My neighbor wanted to buy a different home, has his current home paid for, has ample down payment, and has a steady income.

Unfortunately, since he co-signed for his three children's student loans, the banks would not give him the loan for a new home, for they said that put this debt to equity over the limit.

Note: None of his children have defaulted, all are current, and have jobs (for now), but the banks said they could (default).


Slowly, he is starting to understand my view on things...........



tempo's picture

69 years ago 1st atomic bomb dropped (8/6/45) and established US as the world's super power which then established the $ as the world's energy reserve currency. The $ would never the world's currency w/o dropping the bomb and the US easy life and entitlement mentality never developed. US $ will just be one of many currencies and our life of ending entitlement will be over in a few years.

Tapeworm's picture


 My wife had essentially nothing when I met her. What worked out in the past thirty years is that she carried no debt and I am a cheap SOB that has borrowed only four times. I too had no debt so we were somewhat similar to many of those in the early 1980's. There was a decent sized cohort that had few assetts but no debt and that payed off the house early. I did it on the profits from Harmony gold mines (HGMCY) and was clear after twelve years.I did not understand my wife's very subdued reaction to the news that we had no bank debt any more.

 Many of our age cohort of 1948-1958 still have crushing debt levels from using the house as the ATM to go for unaffordable vacations and toys if they had been only available by cash payment.

 The happiness of married couples is in inverse proportion to their debt levels going in. That's my theory and I am sticking with it even though I do not have any degree. This POV is akin to a similar measure of happiness based upon physical features.



Escrava Isaura's picture

That's right. Forgot that $95000 option!


Bill of Rights's picture

Joe Biden The " Nation " of Africa,..This administration is a Global embarrassment.




Escrava Isaura's picture

Ohh Boy! You sure have short memory.


fonzannoon's picture

I guess we pissed off the almighty eh?

Grande Tetons's picture

That was cool. Kinda like watching the dog eat your homework in real time. 


DoChenRollingBearing's picture

Well done, fonz!  Now I want to look at the other threads too!  Ha ha ha ha ha!

DoChenRollingBearing's picture

Tylers killed off the bot saying how much his sister's *whatever* was making.  fonz must have convinced the Tylers that the time had come...

When Tyler boots someone off a thread, all remarks "under" it disappear as well.  That's what fonz was referring to.

Dr. Engali's picture

Wtf does Bush have to do with Bill of rights statement? Are you so butt hurt that you just want it to be on the record that Bush was a national embarrassment? Well guess what? You won't get any argument on this site. Why don't you try posting something of relevance? Just once... You may like it.

Escrava Isaura's picture

Dr. Engali,

What's going on here?

NoDebt's picture

Stick around.  Some of this stuff you have to just put in the time and learn the references.  I'm sure somebody will jump in and state it plain for you, but you won't appreciate it as much as figuring it out on your own.

Escrava Isaura's picture

Thanks for the heads up.

Now, I am gonna make me another drink. Don’t want to be thirsty while fighting.

Dr. Engali's picture

What's going on is that you decide to insult somebody because they make a true statement like "joe Biden is a national embarrassment" . Yes Bush was an embarrassment, but that doesn't make Joe Biden any less so. But what really rubs me the wrong way is that you insult people just for the sake of insulting them while never adding anything substantive to the discussion.

fonzannoon's picture

sounds like a real headbanger

Dr. Engali's picture

I think he has a thing for you that's why he's so head bangingly (yeah I made that up) frustrated.

Escrava Isaura's picture

Frustrated? You get do better than that, Buddy!