November 12, 2018
Student loan debt in America has topped $1.5 trillion dollars, and millennials hold a large amount of that debt burden. As of 2017, 37.5% of Americans with student loan debt were under the age of thirty.
A new study by MagnifyMoney highlights the difficulties millennials face because of their debt. Since student debt draws money away from other savings and investment opportunities, the long-term effect on net worth can be devastating.
The short-term effect on net worth is striking as well. According to the study, millennial households without student debt have an average net worth of $114,376. Millennial households holding student debt have an average net worth of $29,087 – approximately 75% less than their student-debt-free counterparts.
The discrepancy shows up in all financial aspects.
Millennial households without student loan burdens have almost twice as much in their savings and checking accounts compared to those with student loans ($10,180 to $5,500). Similarly, households without student loans had an average of $39,905 in their retirement accounts versus $21,160 for households with student loans.
The retirement savings discrepancy is especially grim, because millennials with student loan burdens are missing out on the effects of compounding. Over the course of thirty years, money that could have been directed to retirement funds instead of student loan payments could have generated tens of thousands of retirement dollars.
With less cash on hand, you’d expect millennials with student loans to have more credit card debt. You’d be right.
While 32% of Americans without student loans have credit card debt, 55% of Americans with student loans have credit card debt – and student loan debtors carry almost twice the average balance of non-debtors ($2,888 to $1,476).
What’s the effect of student loans on housing? According to the study, home-owning millennials with student loan debt have 5% lower home values compared to non-debtors, and their mortgages are higher on average ($104,000 versus $98,000).
Student loans didn’t always create such a burden on American households. The survey found that in 1989, among households headed by those under 35 years old, the addition of student loan debt reduced average net worth by 13%. By 1998, the difference rose to 36%.
What’s creating the widening net worth gap? One huge factor is skyrocketing college costs that don’t necessarily provide higher future salaries. In 1989, the average tuition and fees (adjusted to 2018 dollars) was $17,010 for private non-profit four-year universities and $3,360 for public ones. In 2018, the numbers were $35,830 and $10,230, respectively.
In other words, public universities aren’t the bargain they used to be and the return on investment (ROI) in a college education is poor if your degree doesn’t result in a proportionally higher salary.
Since many millennials came of age during a raging recession with high unemployment rates – and burdened with high student loan balances on average – their struggles are no surprise.
If you’re a millennial struggling with student loan burdens, investigate options to increase your income and make extra payments to pay off your debt as fast as possible. Consider refinancing options. If things are really tight, investigate income-based repayment plans or other options through the U.S. Department of Education.
Do you have a son or daughter getting ready to go to college – or are you heading there yourself? Choose your college wisely, with an eye on an ROI. You can have fun at virtually any college. How much fun will you have after college if your collegiate debts take up most of your income?
If you want to reduce your interest payments and lower your debt, join MoneyTips and use our free Debt Optimizer tool.