Let’s talk Student Loan Debt and specifically how it affects building wealth!
A comment last week by a colleague at Reach Your Goals Personal Finance Coaching got me thinking about how Student Loan Debt is affecting Net Worth, particularly among young people.
As of 2018, outstanding student loan debt in the US surpassed $1.48T.
Read below for a deeper dive into the data, provided by the Federal Reserve’s Survey of Consumer Finances, as well as where we stand today as far as policy and forgiveness options.
The data by the Federal Reserve shows that Millennial borrowers (born 1981-1996) are affected the most negatively by their student debt in the following wealth-building areas: Net Worth, Savings, Credit Card Debt, Home Ownership, and Retirement Savings.
Net Worth:
The difference in the average Net Worth of a Millennial with student loans is 75% less than that of their peers without student loans. This figure has been widening over the last few decades; in 1989, those with student debt under the age of 35 had only 13% less Net Worth than their peers without education debt. Costs have been going up, while wages remain stagnant in comparison, even for those with college degrees.
Savings: College graduates with student loans had a median bank balance of $5500, while grads without loans had more than twice that.
Credit Card Debt:
Credit card debt was found to be higher among student loan borrowers, likely because of having less cash on hand to pay for expenses. For example, 55% of those with education debt also had credit card debt vs 32% of those without student loans.
Home Ownership:
Homeownership is lower among those with student loans than those without. Those who do purchase homes often do not have the down payment amounts of their student loan-free peers; the median mortgage was $104,000 among people holding student debt vs $98,000 for those without student loans.
Retirement Savings:
Data shows that Millennials with education debt have an average of $18,745 less in retirement savings than their peers with no student loan debt.
As we can see, student loans are impacting young people financially on all fronts. More than ever, quality money management is essential to figuring out the best plan of action in order to meet our goals.
Where We Are Today:
As of April 6 2022, responding to the economic consequences of Covid, the US Department of Education extended the pause on student loan repayment, interest, and collections thru August 31, 2022. Meaning, those unable to pay currently can pause their payments, and start fresh as of Sept 1, without having to make up for accumulated interest during the forbearance.
Curious about to other options to reduce your student loans? If you’re a public service worker, you may qualify for the Public Service Loan Forgiveness program. The program was re-worked in October of 2021 to be much more effective in making forgiveness eligible to more borrowers. The deadline to apply is October 31, 2022 at Studentaid.gov.
Relief can also be found if your institution went bankrupt, you have a disability, or have a small business eligible for the Paycheck Protection Program.
Unlocking Abundance 