Senator Elizabeth Warren’s plan to proposal to cancel up to $50,000 in student debt per person could allow first-time homebuyers to save for a down payment three years faster, according to Redfin.
We assume a potential homebuyer with the average amount of student debt spends 10 percent of her income ($549 per month) on debt repayment at the average 5.8 percent interest rate. If after paying off her student debt she started saving that 10 percent of her income toward a 20 percent down payment on the national median-priced home ($308,000), it would take 12.3 years to pay off her student loans and save enough money for the full 20 percent down payment ($61,600), assuming home price and income did not change. Under Elizabeth Warren’s plan to cancel up to $50,000 of student loan debt, she could instead immediately begin saving for a down payment, shrinking the time it would take to save up the down payment to 9.4 years.
“The idea of taking on a mortgage when you’re still paying off tens of thousands of dollars in student loans is a non-starter for many people,” said Redfin chief economist Daryl Fairweather. “If student debt were eliminated, college grads would be able to start building wealth through homeownership, laying down roots and contributing to their communities years earlier in their lives. An influx of young, educated homeowners could have positive impacts on neighborhoods and society at large.”