And the debates have started! With 24 Democratic candidates running (20 on the debate stage) for the White House, their policies and promises are going to be so important to stand out.
Senators Bernie Sanders of Vermont and Elizabeth Warren of Massachusetts have caused quite a conversation regarding abolishing all student debt (currently at approximately $1.6 trillion) and making higher education free for all going forward. Although there are many ways this conversation can go, in this article, we will focus on my bread and butter…real estate.
Wiping out the student loan debt will do two primary things. The first is create more disposable income. This amount, assuming the borrower does it, could go towards savings, paying off other debt, or applied towards the future down payment. This will allow them to purchase at higher price points that they may otherwise not have been able to afford.
The second is they would qualify for higher loan amounts, as they would have less debt in the books. This is part of their debt-to-income ratio. Without the student loans, it allows for a higher loan amount to leverage. For example, if someone is paying $500 towards their student loans, that could go towards a loan amount as much as $100,000 towards a home. That is substantial is areas of Los Angeles and could be the difference between neighborhoods or between a condo in one neighborhood versus buying a house in another.
So, what about home values? One could argue that values would see an increase, as there could be more “would be buyers” with the same amount of inventory, thus increasing competition. In addition, this new influx of would-be homebuyers would be in a better position to qualify and pay more, thus the days of bidding wars could be among us.
We will see what happens with the elections and if this idea comes to fruition. If it does, give it some time and the real estate market will boom like we haven’t seen in years.
What are your thoughts? Do you thinking wiping out student loans is good for the country? Let’s start the conversation!
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