Unleash the next generation of homeowners: Renegotiate student loan debt

Drive through the neighborhoods of Ohio.  You will observe thousands of vacant homes devoid of a generation of aspiring young homeowners. The opportunity for this generation to buy a first home has been thwarted by sluggish income growth in the job market often made worse by the overcharge of student loan debt.  That debt has put home ownership out of reach for millions of credit worthy borrowers.

All across America, this story repeats itself.  Millions of habitable homes sit unoccupied. In 2014, the percentage of houses sold to first time homebuyers dropped to 33 percent, the lowest level in three decades. These separate but related conditions retard economic growth, depressing home purchases across our country.  These trends must be reversed. Debtors must become equity stakeholders.

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The current slow recovery is the first since World War II where housing has not led our economy forward. At the end of last year, nearly 17 million homes sat vacant in the United States. That’s enough empty homes to house the combined populations of Ohio and Indiana. Vacant structures also drag down adjacent property values and contribute to a downward spiral in neighborhood stability and worth.

Last year, more than 57,000 homes sat vacant in my congressional district alone.  Just in October 2015, there were more than 5,300 homes in my home state of Ohio that remained on the market for nine months or longer. Those homes have a combined value of $1.9 billion. These under-invested assets represent a vast untapped source of wealth creation for families and our nation.

Meanwhile, student debt in the U.S. currently totals $1.3 trillion. More than 40 million Americans have at least one outstanding student loan, a number that is up significantly from 29 million Americans just ten years ago. Student loan debt is weighing down millions of young families, effectively locking out their buying power to purchase their first home, the most common way in which Americans have grown wealth in previous eras.

There is a popular lending instrument already in widespread use that could serve as a bridge for credit-worthy student borrowers to become homeowners: the home mortgage. This common lending tool has the power over time to transform the stream of student loan repayments by credit worthy individuals into home ownership. 

Building a road forward for student debt holders through the home mortgage instrument would require cooperation of three federal departments: the Department of Education, Department of Housing and Urban Development (HUD), and the U.S. Treasury Department.  This presents a surmountable challenge. An initial test of this concept could take the form of a pilot project directed through HUD’s Federal Housing Administration (FHA).  Credit worthy federal student debt holders could be connected with available housing properties held by or serviced through the federal government or local county land banks.

By arranging prudent financing alternatives that recalculate terms, debt-to-income ratios, mortgage interest rates and other factors, FHA could transition shorter-term student debt into longer term home ownership. The economic and financial gains are potentially even greater in the long run as housing values rise. Over time, participants would help restore neighborhoods, transform their debt to equity, buoy property values locally and improve the FHA ledger simply by maintaining and investing in a home.

The status quo has created a permanent debtor class of millions of student borrowers. This is not in the public interest. Instead, America needs home equity stakeholders. If America continues to do nothing, thousands more student debt holders will live, work, and eventually retire without ever escaping the burden of their sunk debt. At the same time, first time housing purchases will continue to be retarded, and our neighborhood housing stock deteriorate.

Congress has the power to unleash the debt stranglehold on the next generation. Let’s transform student loan repayments into equity stakeholds. We have the resources, the power, a compelling economic interest, and a moral responsibility to do something about unshackling the aspiring generation. Let’s get started.

Kaptur has represented Ohio’s 9th Congressional District since 1983. She sits on the Appropriations Committee.

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