Student Loans - Good or Bad for the Multifamily Industry?

I have read several articles in the last month or so that claim rents are on the rise, and the general health of our economy is beginning to recover. New multi-housing starts virtually came to a stand still about 2 years ago which is now creating a shortage in supply and increase in rental rates. This is great news for all of us, and I can't wait for my own rental homes to be above water!

On the flip side, I continue to read horror stories of recent college grads that have mountains of student loans to pay off and either have no job or a low paying entry level position. Looking to the near future of 2011 and 2012 grads, how is this going to effect the multifamily industry?

We've all heard that a college degree is the most important step post high school, and every student has lofty dreams of high paying careers following graduation. This mantra sends thousands of teens to big name schools with huge price tags every year. Sixty seven percent of these students will graduate with student loans that average $23,200 (1 out of 10 owes more than $40,000). Six to nine months after you are no longer enrolled in college, depending on the loan, payments are expected. Student loans are also protected from bankruptcy filings.

To make matters worse, tuition and fees have risen 4.9% per year over inflation in the last decade, and the University of California system plans on increasing tuition by 32% over the next year.

2009 also saw a record high unemployment rate for bachelor's degree holding individuals aged 20-24 of 8.8%. If you're lucky enough to land that first job, the median salary for those with less than one year experience is $42,906. The numbers; however, are much more positive when you look at the population as a whole. The unemployment rate in December 2010 for high school graduates with no college was 9.8% compared to those with a bachelor's degree or higher at only 4.8%.

As more and more students come out of college with an increasing amount of debt, I believe it will have a two fold effect on the multifamily industry. On one side, there will be many grads that move back with family to save money and pay down debt. Recent studies have shown that about 50-60% of grads move back in with parents, and 32% of them will stay more than one year. On the other side, student loans make it more difficult to purchase your first home, which will increase the tenure of those that choose to rent.




Sources

Alberts, Hana R., Deep in Debt, 2010, www.forbes.com/2010/08/01/student-loan-f...leges-10-debt_3.html . (11 August 2010).

Bureau of Labor Statistics, Employment status of the civilian population 25 years and over by educational attainment, 2011, www.bls.gov/news.release/empsit.t04.htm . (7 January 2011).

Mui, Ylan Q., Strapped Grads Get Financial Lessons on Familiar Turf, 2006, www.washingtonpost.com/wp-dyn/content/ar...AR2006090200093.html . (3 September 2006).

Student Aid on the Web, Repayment Information, 2010, studentaid.ed.gov/PORTALSWebApp/students/english/repaying.jsp . (2 September 2010).

Weston, Liz Pulliam, How much college debt is too much?, articles.moneycentral.msn.com/CollegeAnd...sTooMuch.aspx?page=1 .