Mired in debt, Millennials stuck in a financial ditch
DETROIT – Siara Sellers, 28, owes almost $13,000 on student loans — money that has become a financial roadblock ever since she dropped out of community college.
Sellers, who lives in Detroit, has been working part time for the past eight months or so at the UPS warehouse in nearby Livonia, Mich., making about $11 an hour. She left school in 2013 after her grades plummeted when her older, now-retired husband became sick.
Now, she says she cannot afford to put any money toward paying off her college loans because of her limited income. Her federal loans are in deferment, which means she can temporarily stop making payments.
While many people are on a stronger financial footing after the economic recovery, many young people feel very much left behind, especially if they’re juggling low-paying jobs with high lev- els of college loan debt.
Young adults with college degrees and student debt are stuck in a financial ditch and unable to build wealth as quickly as their parents did when they were younger, a study released in April by the Young Invincibles, a young adult advocacy group, says.
The problem? Millennials are bringing home significantly smaller paychecks, tend to be less likely to own a home and aren’t saving as much for retirement as young adults did in the late 1980s. They’re burdened with debt but not acquiring assets quickly.
Young adults with college degrees and student debt, for example, find themselves looking at a median, negative net wealth of $1,900 based on research by the Young Invincibles. Simply put, they owe more than they own.
That’s a sizable drop from a median net wealth of $9,000 for that age group in 2013.
The study looked at young adults ranging in age from 25 to 34 in 1989 and in 2013 respectively, as well as Baby Boomers at the same age.
“A college degree is still on average a very good investment for building financial security,” said Tom Allison, deputy policy and research director for the Young Invincibles.
On average, he said, college grads make more money than those without a degree. But young adults are taking on more debt to get those better-paying jobs.
“There’s no question it used to be much easier to build financial security 25 years ago with a college degree,” Allison said.
In general, consumers experienced broad-based gains in their income and net worth from 2013 to 2016, according to the most recent Federal Reserve Board Survey of Consumer Finances.
“It used to be much easier to build financial security.” Tom Allison of the Young Invincibles, an advocacy group
Overall, the median net worth — the difference between one’s assets and liabilities — rose 16% to $97,300 for all families in the survey group.
Assets would include things such as savings accounts, college savings plans, retirement accounts, cars and equity in a home.
For younger families under 35, median net worth rose 4% to $11,100 in 2016.
But many younger adults started their careers during the recession in 2008-09 when it was tough to get a job, and they ended up taking lower-paying jobs along the way.
Someone who starts on a lower rung on the ladder typically isn’t getting rapid pay raises that would make up for that lost ground, Allison said.
On average, a person starting work in 2010 is seeing much slower growth in real disposable income — money that’s available after income taxes and inflation — than someone who started working in the 1980s or 1990s, according to Paul Traub, senior business economist for the Federal Reserve Bank of Chicago — Detroit Branch.
“It is true that the standard of living is better today, but overall, people are not experiencing the same opportunities as people from earlier generations,” Traub said.
Wages are in a rut
Some of the blame goes to younger workers entering the market for a lower wage. But wages are stuck in a rut, too.
“The Great Recession pushed wage growth down as the unemployment rate reached 10%,” Traub said. “Since then, wage growth has been very slow.”
As the unemployment rate falls, wages should rise as employers face more competition for workers. But wages have not risen as much as one would expect in part because of structural changes in the economy, Traub said.
“Many of the higher-paying production jobs have been automated away or outsourced to lower-wage countries,” Traub said.
Without a good-paying job, it’s far tougher to manage the burden of college debt and save money for a down payment on a home or save for retirement.
“Student debt is clearly impacting young people’s ability to build financial security,” Allison said. “Student debt doesn’t come with a tangible asset, at least not right away,” he said.
Cost of college
About 43.3% of young families — where the head of the household is younger than 40 — had education-related debt, according to the Federal Reserve Board’s 2016 Survey of Consumer Finances.
That’s up from 38.8% in the Fed’s 2013 survey.
The amount of debt also trended upward. The average amount of education debt was $33,300 in 2016, up from $30,700 in the 2013 survey.
About 72% of college grads carry some debt along with that diploma.
“Federal and state government grants have not been keeping pace with increases in college costs on a per-student, inflation-adjusted basis,” said Mark Kantrowitz, publisher of www.PrivateStudentLoans.guru.
The burden of paying for college has shifted to families and away from the government, he said.
Given that the income for many families has been mostly flat since 2000, he said, many families do not have more resources to pay the higher tuition bills.
“This forces them to borrow more,” Kantrowitz said.
Borrowing to go to college isn’t bad in and of itself. More education debt is held by families with higher income levels, indicating that many are able to pay off that debt, according to the Fed study.
“Even if recent college grads emerge with debt, they are still likely to be much better off over their lifetimes than those who don’t get a college degree,” said Charles Ballard, a professor of economics at Michigan State University.