Student loan debt for the millennial generation

The news about millennial student loan debt makes business headlines as often as the latest Marvel movie makes entertainment news. One story is about superheroes saving the day, the other is about how much money you owe. One topic is exciting and entertaining, but the other is stressful and challenging.

If you’re a millennial, it’s a safe bet that when you planned to get your college education, you hoped to transform that degree into a career that fit your interests and helped you build wealth just like your parents did. You certainly didn't think you were going to need a superhero to save you from all that student debt.

But student debt isn't new. Generation X (born between 1965-1980) had it. Generation Z (born between 1995-2012) is accumulating it. Yet, for the millennial generation — Gen Y (that's also you if you were born around 1980-1995) — the debt is changing your future in a way that is uniquely millennial. Your generation is all about being unique. Being in debt is not new. How you handle it, though, may change the future for you and the generations to follow.

How much does the average millennial owe in student loans?

How's this for a shocker: As of October 2021, 14.8 million millennials still owed money on their student loans. The average amount of those loans was $38,877, so using that collegiate math class you're still paying for, you'd be able to figure out that's more than $575 billion dollars in student loan debt.

Want a bigger shock? It's even worse for Gen X. That's right, they may be older than you, but the average student debt for Gen X is $45,095. Individually, millennials are better off. Collectively, there are more millennials with student loans, so it's easy for the headlines to make it sound like this is strictly a millennial problem. It's not.

If you think it's tough as a millennial, imagine what the average student debt will be for not just Gen Z behind you, but for your children (Generation A).

Why do millennials have so much college debt?

The student debt crisis, as we've all heard it described, resembles the Bermuda triangle of borrowing money. For millennials, there are three big factors that combine to make it feel worse for your generation.

1. The Great Recession

Yep, that's another common term that comes up when talking about millennial debt. Don't think you were the only ones impacted, but it does tie closely to student loan debt.

For older millennials, the employment downturn put the brakes on taking that shiny new college diploma out for a spin and seeing what it can do. The housing market also wasn't agreeable to borrowers with thin credit histories.

The impact was felt broadly and set back even the parents with PLUS loans, and those who many have been attending college part-time. For the younger millennials, college enrollment provided an alternative to waiting out the employment downturn and attending classes after high school instead of searching for hard-to-find work.

2. College Enrollment

More millennials chose the path of higher education after high school for many reasons. With less federal student aid available, student loans became a necessity to get a college degree. And that college degree can mean more income over your lifetime.

Compared to Gen X — the first generation that saw a noticeable increase in college enrollment — 25% more millennials received college degrees than your predecessors. That's both a blessing and a curse. It will allow for higher incomes and earning potential throughout your lifetime, but that also means more debt.

The part of this equation that really concerns many Americans is that nearly 40% of those with student loan debt never finished college. Typically, these borrowers owe less than $5,000, but are also more likely to default on their student loans, creating a long-term credit challenge for themselves. That leaves those millennials with a pile of student loan debt, but without the earning potential to pay off that debt.

3. Prices go up

The cost of college is more expensive for you than the generation before you, which means it costs you more to get that college degree. Combine that with higher costs for housing — and just about everything else — and it makes paying down the debt more challenging, too.

For a Gen X college student in 1991 compared to a Gen Z starting college in 2021, the cost of a two-year college increased by 64% and a four-year college increased by 158%. The cost of a private bachelor's degree increased by 97%. That's a lot more student loan debt, especially since financial aid also decreased.

But here's why the student loan category is such a hot topic: the Pew Research Center determined the number of households with student loan debt doubled from the end of the 20th century through 2016. These three factors contributed to this increase and will affect millennials' ability to increase their wealth through borrowing as they work to pay off their student loans.

News reporters don't refer to the student debt crisis as "the student debt inconvenience." The fact is that many Americans are facing a real crisis as they try to wriggle out from under these loans. There is good news, too, though, so let's see if we can sift through the peaks and pits of student loan debt, as well as other forms of millennial debt.

What percentage of millennials are in debt?

Of the more than 83 million millennials in America, 86% have some sort of debt. According to a study by the Pew Research Center, only one age group has more debt than millennials: Gen X at 89%.

But that one percentage doesn't paint a full picture of the debt crisis for millennials. In fact, it's just the outline of the bigger picture.

Two-thirds of all millennials have credit card debt, and while you tend to carry a lower balance than the Gen Xers, it's still debt waiting to be paid off. Only 26% of millennials have mortgage debt — a percentage that may be on the low side for older millennials, but just as many of your generation are still in their mid-20s and have yet to consider homeownership as part of their life plan. One-third also have an auto loan. How else are you going to get where you're going in life without one?

Can you get student loan forgiveness?

Pretty please? It's the dream of every borrower to have their debt magically disappear and every time a politician or news report mentions the possibility of student loan forgiveness, somewhere a student loan borrower crosses their fingers hoping the option is still viable.

But there are more options than just wishful thinking. Student loan forgiveness is already a reality for some borrowers, and many others are working towards it.

Will your student loan debt be forgiven?

When it comes to student loan debt, most loans are federal student loans. According to a 2021 study by the College Board, only 13% of student loans are not part of federal loan programs. When the federal government weighs in on the possibility of loan forgiveness, also known as loan cancellation, this impacts most borrowers.

Millennial borrowers may be hopeful for student loan forgiveness, but for some millennials, the hope is real. Student loan forgiveness first became an option for college graduates who entered public service, such as teachers and government workers. The process has met with challenges in helping forgive the loans, but work is advancing through the Department of Education to help make the promise a reality.

To learn more about existing loan forgiveness programs, visit the Federal Student Aid website. However, there are additional options for reducing student loan debt.

How can you pay off your student loan?

If you plan to hammer away at the debt, there are ways to tackle your federal student loans strategically. Using the snowball method, you can focus on your smallest debt first. This may be your credit card loan. The avalanche method, while similar, focuses on the loans with the highest interest rate first. Both methods require you to make minimum payments on all other loans you may have and concentrate all your extra surplus income on one loan until it is eliminated.

Another option that can impact your overall budget and bigger financial decisions is employer repayment. In a competitive job market, employers are offering additional benefits to hire and retain employees. One big benefit includes offering student loan repayment programs. If your employer does not offer this benefit, they may in the not-too-distant future, as more employers recognize how many potential employees could use this extra shot of student loan repayment.

Still another repayment option involves student loan refinancing. Since most student loans are federally managed, this may not be a perfect solution for everyone. However, if you have student loans, an auto loan, and credit card debt, the opportunity to consolidate them into a single payment, or lower your interest rate, has some appeal.

Debt consolidation requires some research, as you could lose any federally backed opportunities, such as deferral due to unemployment. If you and your spouse both have student loans from before you were married, the option may help both of you pay down your debt together. A personal loan that can also allow you flexibility in case of emergencies may give you the comfort to allow you to make strides without the stress of sacrificing your savings.

There are non-profit organizations also pushing for student loan forgiveness, but many borrowers are not holding their breath and waiting for a bailout.

How long will it take to pay off your loans?

Making a guess as to when you will finally put your student loans behind you will depend on more factors than can even be listed. No doubt most millennials did not plan on a global pandemic waylaying savings and repayment plans.

Depending on your age — some millennials are in their 40s and others are still in their 20s — having student loan debt may be quite normal. The average age when student loan debt peaks is 35 so if you are under 30 and still hoping to reach your student loan repayment benefits, it's not time to worry just yet.

Of course, how long it takes to pay off your student loan debt will entirely depend on your personal finance plan, your income, and your other debts and financial responsibilities. Across your entire generation, there are millennials already paying down their mortgages, while some millennials are still living under the same roof as their parents. Renting remains an option for many, too, as they prefer not to incur more debt, or start over with more loans.

Is student loan debt holding back most millennials from homeownership?

According to a recent Bankrate survey, nearly two-thirds of student loan borrowers, regardless of their generation, have postponed large financial decisions because of student loan debt. The AARP conducted a survey that one in four millennials postponed moving out of their current home due to their student loan debt.

That doesn't mean homeownership is completely dependent on the elimination of your student loan debt. The key, as you might expect, is to remain consistent and responsible in tackling all your debt. Making payments on time, lowering your overall debt-to-income ratio, and making sure you have a savings plan for your down payment are all good ways to do this.

Building a savings plan is more than just setting aside money. Save with intention knowing what you are saving towards. Start with your emergency fund, then build towards your retirement.

When it comes to homeownership, there is one uniquely millennial tip to keep in mind: there are no rules. Building your financial future is about what is best for you. Whether buying a home or planning for your life after retirement, there are no rules about what you have to do or when you have to do it. Develop a long-term financial wellness plan that pays down your student loan debt, helps guide you along your priorities, and creates a future that epitomizes the millennial generation — whatever you want it to look like.

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