With tuition rising almost eight times faster than wages, it is no wonder that millennial student debt has skyrocketed well beyond the level experienced by their Gen X and Baby Boomer parents.
According to the National Center for Education Statistics, the average cost of a college education in 2016 was $104,480–double the cost of the same degree in 1989 (adjusted for inflation). Meanwhile, wages increased only $5,000 per year during the same period of time, reports the Federal Reserve Bank of St. Louis.
Student loan debt reached an all-time high of $1.6 trillion this year, with the average college graduate leaving with a diploma–and $30,000 in loans.
The 2019 Poverty and Inequality Report from Stanford University indicates that in comparison to Generation X (born between 1965 and 1980), millennials (born between 1981 and 1996) take out more and larger student loans and default more frequently. The report attributes much of this to higher tuition and the unfortunate timing of graduating into a post-recessionary economy.
Unfortunate timing or not, more than half of millennials who took out student loans say that going to college hasn’t been worth the financial burden, according to a Morning Consult survey.
But the negative ramifications of student loan debt are far reaching, making the need for financial wellness education more important than ever.
Home buying
Because of student loan debt, millennials are more likely to put off buying a home until long after the age when their parents had begun building equity. A recent Zillow report and SmartAsset study found:
● 25 percent of home buyers have been denied a mortgage due to debt.
● 25 percent of renters have been denied a rental agreement due to debt.
● 76 percent of home buyers with student loan debt have a down payment of less than 20 percent, which often increases the interest rate.
● 31 percent of millennials want to own a home but aren’t currently saving for one.
The housing market rebound has increased both home sales and rental prices. According to the U.S. Census Global Property Guide, the average cost of a home in the U.S. is more than 28 percent higher than it was 10 years ago, and rental prices have increased by 33 percent in the same time period.
However, since millennials are not buying homes, they are not reaping the benefits of rising home prices. Instead of creating wealth with property like their parents did, they remain renters and fail to build equity.
Saving and investing
Today’s average millennial employee earns $35,592, which is 20 percent lower (when accounting for inflation) than Baby Boomers earned at that age, according to SmartAsset.
Whether renting or paying a mortgage, these employees are spending between 30 and 40 percent of their annual income on housing costs, according to data from the U.S. Bureau of Labor Statistics. Twenty percent of their annual income is going towards student loan debt, a TD Bank survey revealed.
