Most millennials have unwillingly become part of the newest class warfare of the century. What is fueling the conflict? Student loan debt and its large-scale snowball effects on the lives of millennials who have had to depend on it for their tertiary education needs.
There has been widening wealth rift between households with student loans debts and those without. In 1998, under- 35 families under the clutches of student loan debt had a 36% less net worth than households without student debt. A household with student debt had a net worth of $68,687 while the later had an average net value of $108,146.
By 2016, this rift had widened to a whopping 75%. A household with student debt was worth $29,087 while one without was worth $114,376.
The most educated and debt-ridden workforce in history
Student debt has recently toppled infamous credit card debt as America’s leading source of liability. It has hit a record $1.4 trillion as per Federal Reserve estimates and shows no signs of regression. This amount is at least 1.5 times the amount owed on credit card debt by Americans as a whole.
Millennials are now overtaking baby boomers as the U.S largest adult generation. They are also the dominant generation in the U.S workforce, and most educated in the nation’s history. The privileged of being the most studied generation has come at a very high cost.
The most educated workforce in history also has the most significant student loan debt rate recorded. The average millennial has at least $30,000 in student loan debt.
The effects of high costs of living
It is an open secret that America is a debt-ridden nation. The Federal Reserve says that the average US household has an income of $59,039 but has a debt of $137,063. Most families are living beyond what they can comfortably afford and have therefore become enslaved by one form of debt or the other including, auto loans, mortgages and credit card debt.
The picture looks even grimmer with the statistics that the U.S average cost of living has shot up by 30% in the last 13 years. All this is happening when the growth of household income increased at a paltry 28% in the same period.
A grim future for millennials
This financial climate has made life particularly hard for the millennials who are starting out their work lives, with their future already tangled in debt. The debt has to factor into every financial move they make hampering their chances of financial success, unlike baby boomers who started out on a cleaner slate.
It comes as no surprise then that 46% of all millennials are not entertaining the thought of educating their offspring on student loans. More Gen Zers would. A whopping 73.1% of them are actually at home with the idea of it. A hefty 61.2% of Gen Xers and 66.8% of Baby Boomers would also advocate for student loans as a viable means of taking students through tertiary education.
Dealing with the effects of the economic recession
So why is there such a disparity between the views on student loans between millennials and other generations? American millennials were born and raised between 1980 and 2000, a considerably fruitful time economically in the U.S. Their parents had the benefit of affordable higher education, but millennials were still too young to enjoy it before the recession hit. And it was all downhill from there.
Leaving college saddled with thousands of dollars in debt makes for a very shaky starting ground. The result? Millennials are staying longer with their parents, even when they are expected to move out and fend for themselves. They are reluctant to get married too, or have children, or even purchase a car. Give them Uber or timeshare apartments, and they will be good to go.
It is no wonder then that they are wrongly accused of being lazy and unambitious, gorging themselves on avocado toasts and spending all their earnings on artisan coffee making machines. Are millennials really spending themselves out of a future? No, below are facts why.
The financial implications starting out in debt has had on millennials
- Thanks to the economic depression of the 2000’s, millennials have lower wages and earn 7% less income than they should earn when starting out on their employment journey. Baby boomers on the other hand only earned 1% lower than expected in their time. This makes a very huge difference in the way their lives pan out. Since they have less income, to begin with, they are shelving off their long-term goals more than their parents did.
- A student loan debt of $30,000 is equal to the price of a new vehicle. That amount of debt makes it very difficult for millennials to get financial funding for their business ideas. Research shows that 48% of all millennials with plans to launch businesses say that student loans have adversely impacted their ability to borrow and finance their dream businesses. Being an extremely entrepreneurial generation, 43% of them with businesses or starting out in one say that their debt hinders their ability to invest and upscale their businesses or hire human resource.
- Paying back student loans also leaves millennials with little to live on since a huge chunk of their paycheck goes to debt repayment. Millennials with student loans have 46% fewer savings in their accounts than those without. Having less cash at hand leaves them also very susceptible to other forms of debt. For example, 55% of student loan borrowers have credit card debt or short term loan from lending service like this , while only 32% of those without it have credit card debt. Why? The most accessible form of credit available, especially for millennials with education debt is credit card debt. They will use high-interest credit card debt to finance larger purchases, leaving them in worse off financial conditions.
- Because millennials are paying off their education loans, they also have less money at hand to save for retirement. Millennials with education loan debt have $18,745 less in their 401k, IRA and nest egg accounts than those without. They also do not have much left to pay for home mortgages. At least 36% of millennials without education have started their journey to homeownership compared to 34% of those with education debt.
Ways to get out of education loan debt
There are various ways millennials can get out of the student debt cycle and bridge the gap between them and their loan free peers. It all calls for more proactivity by:
- Making extra payments when possible towards faster debt payment, to save more on interest
- Downsizing your living to help create more payments towards your debt repayments
- Boosting your salary by doing a side hustle, asking for a raise or getting a better paying job
- Moving into a carrier that has student loan forgiveness programs
- Refinancing that loan so you could get lower interest rates
The final word
Many millennials, especially those from disadvantaged backgrounds, feel that they were tricked into the burden of student loan debt. Forcing a generation into challenging to repay debt is not a sensible way to eliminate inequality.
Student loans have in the last decades become too easy to get even in cases where it is clear that parents who take them out for their children are in no position to pay them back. This has fueled the demand for college education, driving tertiary education costs higher.
Most millennial term the student loan system as a “failed social experiment.” It is no wonder then that they want to protect their children from it.