Why Student Loan Debt is Crippling Millennials

America’s millennials have many challenges to face; from obtaining job skills in quickly changing markets to shifting cultural dynamics to, literally, saving the planet. Unfortunately, before these future leaders can begin to make their impact, many must first overcome often crippling student loan debt. Americans owe over $1.4 trillion in student loan debt. This debt is spread out among approximately 44 million borrowers. The Class of 2016 graduated with an average of $37,172 in student loan debt. In comparison, Americans have accumulated $764 billion in credit card debt. Thus, the liability for student loans almost doubles that of credit card debt 1.

A college degree has become more important than ever in order to compete in today’s workforce. College tuitions and related costs continue to rise. According to the College Board, public college tuitions increase an average of 3.5 percent each year; this does not include living and other expenses. Yet, the U.S. Census Bureau found that median U.S. family income has been stagnant, at less than .05 percent (well under one percent) growth between 2005 to 2015. In other words, students and parents are paying more than ever for college, but the wages they earn with that new degree may not compensate for the cost of their education for decades.

There are several viable reasons new graduates find themselves buried in student loan debt. Colleges and universities continue to face rising operational costs while federal and state funding declines. Pell Grants, a subsidy provided by the U.S. federal government for students requiring financial aid, used to cover a good portion of education costs. However, Pell Grants have not risen to a great enough degree to cover the ever increasing costs of tuition.

Furthermore, it can be difficult for an 18 or 20-year-old to truly understand the implication of borrowing tens of thousands of dollars per semester for their education. Over the course of four years (often more) the debt they face when they graduate can become astronomical. The “out of sight, out of mind attitude”, which can be construed as a willful ignorance, permeates throughout the borrowing process. In fact, it is not uncommon to find that recent grads don’t even know the full amount that is owed, as they’ve borrowed against multiple loans. Many probably won’t know what percentage of their newly obtained salary will go toward paying their student loan or what the loan’s interest rate is. When the reality of accumulated debt is realized, many millennials are already in a deep, black hole of debt, which can take years to pay off. It is not uncommon for young adults with new degrees to have loan payments they cannot afford, or deferrals, forbearances and outright defaults.

The aftermath of amassed student loan debt can have a direct and dramatic impact on long-term financial wellness. The immediate struggle is simply making enough to survive; this leaves little room to worry about something as abstract as retirement, which is many years down the road. After living expenses and student loans are paid, there is often nothing leftover to contribute to a 401k. A recent survey by Scarborough Capital Management found that only 22.5 percent of millennials are contributing to their retirement; it is fair to assume that student loan debt plays a large role in their inability to make contributions. Postponing retirement contributions into one’s thirties can have a devastating impact on our youth’s ability to retire with any form of financial security.

Luckily, employers are starting to embrace the trend of providing financial wellness programs for employees. This is important for both employers and employees (of all ages). Study after study shows a direct correlation between stress and productivity. According to the Towers Watson’s Global Benefits Survey, offering financial wellness platforms not only improves productivity, it also helps attract and retain employees. Specifically for millennials, companies should also consider providing student loan consolidation services. Student loan debt is becoming a national crisis. There are a multitude of measures that can be taken on a governmental, institutional, corporate, and personal level to alleviate this crisis. The first step is understanding there is a problem, then finding ways to correct it. Our millennials are probably the smartest and most inspiring generation ever seen, and it is the responsibility of the older generation to make sure we allow them a strong foundation from which to build.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended as authoritative guidance or tax or legal advice. You should consult your attorney or tax advisor for guidance on your
specific situation.

Securities offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Global Retirement Partners (GRP), a registered investment advisor. GRP, StoneStreet Advisor Group, NAPA Government Affairs Committee and LPL Financial are separate non-affiliated entities.

1 Student Loan Hero: 2017


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