Browsing through recent financial news articles, student loan debt of Americans is being described by many sources as a new Crisis.
More than 40 million Americans have student debt. Many of them are struggling with just meeting minimum required down payments and many will never be able to pay their loans off. According to the Federal Reserve, the amount of student loans nationwide has tripled to more than $1.5 trillion over the past decade. Especially Millennials, also named Generation Y, which describes the generation of 23-32 year olds, are struggling with student debt.
College tuition keep rising year over year along with living expenses. Many students are forced to take part time jobs to minimize their needs for loans and instead end up extended the length of their education. The average student loan of millennials hover around $35,000. Loans based on longer degrees and degrees from private and more prestigious colleges well exceed $100k. On top of that, many millennials rely on credit cards with high interest rates and private family member loans to supplement their student loans.
With most graduates looking at entry level jobs paying low minimal wages, student loans in those ranges take years if not decades to pay off. It really is a vicious cycle causing significant anxiety and stress for this large young population of Americans. In order to meet their minimum required monthly payments, many work multiple jobs and long hours. Not meeting those payments will continue to increase their debt and impact their credit score and future ability to reach goals in life.
As a result, traditional life events and milestones such as buying a car, getting married, investing a home, starting a family and investing for their retirement are being postponed until later in life. Those things were typically within reach of Baby Boomers in their mid-twenties. Millennials can easily add another decade before they reach that point. Home ownership for 24-32 year olds dropped 9% from 2005 to 2014.
All this re-enforces the importance for young people to become fluent in managing their financial lives. Most young students are faced with the need to make very important life decisions related to education and financing of their education without proper financial knowledge or experience. Those early decisions will haunt them and guide their future opportunities for years to come and for some for the rest of their lives. Young people need to understand how to plan and manage all aspects of their financial lives and master important skills such as prioritization, budgeting, account balancing and use of credit cards as early in life as possible. Even after the “damage” has happened, mastering those skills after getting their first paychecks, can make the difference between successfully fulfilling common life goals and dreams of establishing a family and home ownership, and not. Larger companies are starting to realize the need to help their young employees by offering Financial Wellness plans and seminars. For Millennials, planning for the rest of their lives is never too late.
*Sources: “Experian”, “Federal Reserve”