Student Loan Debt and Its Impact on Millennials
Millennials have been caught in a tailspin with the “great recession” draining the availability of jobs and educational costs rising faster than inflation. This perfect financial storm created a greater need for a college education, but also brought with it high college expenses resulting in heavy loan debt and greater difficulty in finding meaningful employment upon graduation.
Currently statistics indicate that around 70% of millennials are taking out student loans with the average debt upon graduation around $33,000. This can result in a monthly loan payment of nearly $400 when school ends. This reality has impacted young adults earning power, spending power and had a ripple effect on the economy.
Earning power of millennials. Millennials are the most educated generation with more people holding Bachelors and advance degrees than ever before. Over time, higher levels of education have consistently proven to provide higher earning power.
However, recent studies show that millennials, while having more debt than any previous generation, are also struggling to find good paying jobs that meet their skill levels. In 2014 the unemployment rate for those ages 16 to 24 was 13.6%, which is more than double the rate for the overall population. Another 26.8% of college graduates are considered to be underemployed. This has driven many millennials to move back home with their parents during this time of transition.
Even with these dismal statistics, recent studies still show that a college education is worth the cost and college graduates currently earn 98% more than those who lack a college degree¹. With manufacturing jobs on the decline and technical jobs on the rise, it is anticipated that today’s millennials will catch up financially, though it will clearly take time.
Spending power of millennials is directly impacted by the high cost of student loan debt combined with low wages and underemployment. This has led to delays in buying homes and cars and in commitments like marriage and children which drive economic growth.
The recent changes in student loan payment options, including additional options for income based payments has helped former students in the short run because monthly payments have remained affordable. The trouble with these changes is that payments can now be stretched over 25 years which will lead to loan payments, for millennials who choose these options, well into their 40’s, impacting spending power throughout the duration of the loan payments.
Economic Impact. This is the largest generation to come along since the baby boomers, which are now nearing or in retirement. This generation has been known to have conservative spending habits due to their economic realities. Delays in spending for large ticket items like homes and cars on such a large scale, has significantly impacted the overall economy. As wages pick up and Millennials gain stronger employment, their spending habits are likely to change, driving further economic growth.
Millennials are faced with more debt than any previous generation due to ballooning student loan debt. Yet a college education has become essential for competitiveness in the world economy. It’s a price most millennials are willing to pay. This new reality is changing the way young adults see money and debt has led to less consumerism, as millennials evaluate financial priorities in the face of today’s economic challenges.