Millennials and the student debt crisis
The headlines land daily, with a heavy thud upon the backs of everyone I grew up with: “Student debt weighs down millennials’ future.” “Millennials falling behind their boomer parents.” “Why are millennials moving back home?” “Millennials aren’t taking on mortgages.” “Millennials aren’t buying diamonds.” “Investing: The money blind spot for Millennials.”
Millennials — those born between 1981 and 1997 — have had a rough millennium. We entered the job market as the economy was about to crash, in the process of crashing, or in deep recession, and entered said (bad) job market with record amounts of student debt.
We are maligned everywhere as self-obsessed, lazy, or entitled. (Seriously, Google “what’s wrong with Millennials.” You’ll have days of reading material.) Some of this can be attributed to the time-honored tradition of complaining about “kids these days.” But some can be attributed to the fact that a lot of us 20-or-30-somethings feel unimportant and ineffectual in today’s economy. And a big reason for that is the looming specter of student debt.
Student debt is a problem without a real precedent. By that I mean: my generation was the first to face the combination of increased higher education costs, together with a student loan system with high interest rates.
By the numbers: $1.41 trillion (that’s “trillion” with a “T”) in U.S. student loan debt, greater than any type of debt other than mortgages. That’s 44.2 million Americans with debt — 66 percent of public college graduates and 75 percent of private college graduates with student debt, with an average balance of $25,550 for public school grads and $32,300 for private school grads. If college grads want a graduate degree, it will raise the balance anywhere from $10,000 to $135,000 more, on average.
(And, for the record, it’s not just Millennials affected. In 2015, 2.8 million Americans aged 60 or more had student loan debt. In 2005: 700,000.)
The popular theory as to why taking out student debt is safe is, “You need to invest in yourself! Your increased earning power from higher education will easily offset the cost.” The problem: Millennials, on average, earn 20 percent less than their parents at the same stage in life, despite being more educated.
So let’s recap: more than 40 million Millennials have at least $25,000 in debt their parents did not have, and earn 20 percent less than their parents did. And the high interest rates I mentioned earlier? Some of the primary loan types carry interest rates of 6.8 percent, 7.8 percent, or even 8.5 percent. For comparison, the average interest rate for a 30-year mortgage is 3.94% this week. Banks borrow from the Federal Reserve at rates as low as 1.25 percent.
That brings us to the real statistic that matters (or should matter) to readers: 11.2 percent of student loan holders, 4.95 million people, are at least 90 days delinquent on their payments. When you struggle to make monthly payments, your spending in other areas falls away. And so, we see widespread macroeconomic patterns: Millennials don’t purchase real estate. They don’t start businesses. They don’t invest.
(A less obvious effect is, for example, a Penny Hoarder blog article entitled : “$70/Week and Free Cookies! Why Selling Plasma is the Perfect Side Gig [For College Students].” In plain language: “Sell parts of your body to afford school!”)
Personally, student debt has easily been the biggest stressor for my wife and me during our professional careers. (I’ll spare you the details, but if you’re free to ask.) It is not just that we owe so much money. We understand we have a debt to pay. But the weight of the required monthly payment has held complete control over our decisions. And, just like those who were sold bad mortgages before the Great Recession, we get the feeling that we weren’t fully advised of the mess we were getting into when we were 17 or 18. Talk to someone you know with student debt. I’m sure you’ll hear the same thing.
Personal anecdotes aside, why should society care? Why is this more than just “kids these days,” whining about their lot in life?
Because the student loan crisis is going to drag the economy down. Sure, the economy may be fine right now with young people not buying real estate, starting businesses, or investing in stocks. But my co-Millennials and I might still paying off student debt into our 50s. (Yes, this is my current schedule). How will the U.S. economy be affected by an entire generation standing on the sidelines?