Millennials Drowning in Debt: What Are the Broader Effects?
Rick, you’ve discussed at length the implications of the rising cost of college on the broader economy. What are some of those factors, and what does it have to do with millennials specifically? As many parents struggle to pay for their child’s education, some are forced to save less and work longer to prepare for retirement. This has a residual effect on the labor market, as older workers are staying in the workforce longer and making it harder for younger generations to find jobs. Another factor is the student loan situation. A recent report found that student loans have increased 84 percent since the recession, and that 40 million people have at least one student loan with an average balance of $29,000. Among the millennial population specifically, we’re seeing more young adults living with family members, putting off homeownership in favor of paying off debt.
Market Realist – Millennials retreat from the housing market due to heavy debt
Rising student debt is a big factor confronting millennials who are just entering the workforce. According to a recent report from the Consumer Financial Protection Bureau, total student loan debt in the United States (IVV) (IWD) is more than $1.2 trillion, which is higher than any other kind of non-mortgage debt in the United States (IWR). The National Financial Capability Study shows that about 67% of millennials have at least one long-term debt outstanding while 30% have more than one. Plus, a whopping 81% of the college-educated millennials are burdened with at least one long-term debt.
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Millennials are not only burdened with heavy debt but are also having trouble servicing it. Around 50% of millennials are finding it difficult to pay off student loans. Likewise, around 54% of millennials over age 30 are concerned about repaying debts due to financial constraints.
Student debt is a significant drag on the economy. It cuts into savings, delaying marriage and families and leading to declining asset ownership—especially in the housing sector (ITB) (XHB). The homeownership rate between 2000 and 2008 was significantly higher for millennials, and it declined substantially after the recession. At the same time, millennials living with their parents surged rapidly after the recession. If millennials aren’t buying homes or cars and aren’t able to save for retirement, this trend will hurt the economy.