President Biden has officially announced his student loan relief plan to help middle-class federal student loan borrowers get back on track to resume payments come the new year. Borrowers earning less than $125,000 will see debt relief to the tune of $10,000, and Pel Grant recipients will be eligible for up to $20,000 in relief! This is major news for young professionals who are struggling to make ends meet. So how does this affect the U.S. economy as a whole?

Money To Make Purchases

Many borrowers struggling with debt have not had the opportunity to attribute funds toward real estate, cars, and other larger asset purchases. Nearly half of borrowers, about 20 million people, will have their student debt fully canceled, which will open up opportunities for those individuals to invest that capital back into the economy. While some borrowers will still not be in the financial position to make a purchase, others who were planning to buy a home and were not quite there may be able to afford their first home thanks to the relief plan! Even a simple adjustment in their debt-to-income ratio could help some borrowers move out of renting and into homeownership!

Surviving Long-term Debt

In addition to the short-term relief, this plan can also impact long-term challenges. The student loan relief individuals will receive can help them from drowning in debt down the road. People who have higher debt amounts will see their relief drop in the principal amount on their loans which will lower the accruing interest on their debt. So those who may not be in a position to buy now will be in a much better position down the road to invest in real estate. In a 2021 study conducted by the National Association of Realtors, almost 60% of non-homeowning millennials said their student loan debt was a big challenge contributing to them not purchasing a home!

Supply and Demand

As we have discussed in previous articles, the real estate market is not in the most stable position. Though most of the pandemic we saw an influx in demand and not enough supply of homes. While this is starting to level out, another influx of buyers could tip the scales. With that said, it is unlikely that there will be that large of a run for homes once the relief is applied. The flip side of potentially more homebuyers entering the market is the inflationary impact on prices when more millennials decide to buy a home because of debt forgiveness. The ultimate impact on home prices will rely on how mortgage rates change and the number of student loan borrowers that can purchase a home with the new changes!

Want to see if your student loan forgiveness will help you purchase a home? Connect with one of our agents to discover your purchasing options! Call (802) 735-2617 or email us at buyahome@strongwillvt.com.