By David Pickron
As an investor and housing provider, one of the things I fear most is a long-term vacancy. I’m about to face the worst vacancy of my life… all three of my children will finally be out of the home, with two of them heading out over the next few weeks in pursuit of educational advancement. In today’s world, that advancement is usually accompanied by something else we are becoming all too familiar with in the United States, student debt. My children will leave school in 3 years with around $50,000 in student debt, which has become easier than ever to access. Never before have I seen such willing lenders who are anxious to provide funding to someone who statistically is less than likely to make the lender whole. As an industry, this overfunding of student loans, and the high volume of defaults, will begin to affect how you and I manage into the future.
Starting at the end of June, student debt will no longer be paused as a side effect of Covid, and payments will again be called due. Over one-third of all Americans between the age of 18 and 30 have some type of student loan. Thirty percent of those loans were already delinquent before the Covid pause. As a housing provider you are going to see the impact of this over the next several months and years and need to be educated and ready to make the best decision possible.
Having been a private investigator and housing provider my entire adult life, I have seen the ebbs and flows of a changing world when it comes to credit, criminal, and eviction data. Most people see the headlines that credit scores are going up in this country. I have to ask myself; how can that be? Five years ago the major credit bureaus removed liens and judgements, including evictions, from their credit scoring. Last year it was decided to remove medical debt from credit bureaus. With removal of these, the most common factors that affect scores, it’s no wonder credit scores are going up. I can see student loans being added to this alarming trend in the near future. Until that happens, I would consider these three key factors when it comes to analyzing an application where there is evidence of delinquent student loans.
- FINANCIAL: What is the balance of the student loan? If my applicant ends up being garnished by the government to pay their student loan, will they still have enough to pay the rent? Did their education put them in a better paying job, or do they have the same job as if they never went to college?
- MARKET CONDITIONS: How much interest is my property getting in a challenging market? A delinquent student loan will affect the applicants score and might place them in a “Conditional” range where I have to look at all the other factors, and then make the best decision possible. If my property is not getting much action and I see the only bad mark is a student loan and the rest matches my “Approval” criteria, I might have a new business partner. For me, if I see delinquent student debt coupled with any other negative data, my decision is almost always a “no.”
- TIME FRAME: How long has the student debt been delinquent? It is not unusual to see student debt not be paid back immediately as people are getting settled into new jobs. This is often accompanied by moving to new areas of the country, new responsibilities, and a variety of other factors. If I see unpaid long-term student debt, that usually signals that they have little to no intention of paying it back. Unlike other loans, student loans can be delayed, altered, or forgiven. If I have an applicant that completely ignores a student debt, that says something to me.
For applicants who show evidence of consistently paying their student loans…. you are golden in my eyes. Living up to the promises you made as a student shows responsibility that usually bleeds into other parts of your life and shows you take care of your responsibilities. In that case, here are the keys to my rental property.
Most housing providers will be seeing delinquent student debt for many years to come. I would advise you to put that data to the side for a minute and look at all the other factors in your rental criteria. At the end of your normal onboarding process, I would then review the student debt component to help you make a better, informed decision. Your criteria might say “delinquent student debt will not result in an automatic decline but will be measured with the entire scope of the data on the credit, criminal and eviction report.”
The reality of these students, most still developing into young adults, getting into debt at such a youthful age does not serve our society well. Though I don’t want to say that it’s not their fault, I will say that we are allowing them to enter unknowingly into a debt that will affect their future… and maybe even their first rental.
David Pickron is President of Rent Perfect, a private investigator, and fellow housing provider who manages several short, mid, long-term rentals. Subscribe to his weekly Rent Perfect Podcast (available on YouTube, Spotify, and Apple Podcasts) to stay up to date on the latest industry news and for expert tips on how to manage your properties.