Aside from mortgages, what is the most common source of debt in the US? No, it’s not credit card debt, nor is it auto loan debt. You may have guessed from the title of this post, it’s student loan debt, which now totals over 1.3 trillion dollars in the U.S. alone.
When did student debt become such a massive issue? According to the New York Federal Reserve, this happened in the 1st quarter of 2010, when both credit card and student loan debt totaled 760 billion dollars. Now, exactly six years after, it has almost doubled to 1.3 trillion and shows no signs of slowing.
But, why is student debt growing so quickly? One reason is the rising number of college graduates in the US, which is the highest ever, although the effect of this increase is smaller than other factors. The larger contributors to the increase in student debt include rising tuition fees, smaller college savings accounts, and tougher job markets. This is most evident in the average debt amount per student, which, as of late, is concentrated only to the youngest, best-educated part of America’ workforce, (as opposed to other debt which is shared by all generations).
According to a recent study by Nerdwallet.com, the average student graduating with a Bachelor’s degree has roughly $30,000 in debt at the time of graduation. This issue doesn’t just pertain to undergraduates either: MBA students, on average, graduate with $52,000 of debt, and J.D.’s with almost $150,000. Together, this amounts to over 1.3 trillion dollars of debt looming over America’s next generation of workers.
(table courtesy NerdWallet.com)
You may be thinking student loan debt is considered ‘good debt.’ While this is partially true, because student loans are investments in the future that can lead to greater income, the sheer amount of student debt has become a massive burden on millennials that is now unhealthy. This is most apparent in the number of delinquent student debt today. According to the New York Federal Reserve, 11.5% of student loans are more than 90 days delinquent, which is a greater percentage than credit card, mortgage, automobile, and any other major source of debt. And, there are no signs of this rise abating. In fact, student debt delinquency is the only category that has increased since the peak of the 2008 recession.
The negative effects of the today’s student debt amounts are not just financial. Student debt has a profound impact on the psyche of America’s next working generation, adding unnecessary stress to a generation that should be excited to start a new chapter of their life (their career). This stress can affect productivity at work, hurting employers, too. Countless studies have shown the link between stress and inefficiency, and outstanding debt is a major source of this anxiety. Student debt also delays and disrupts major life events such as marriage and financial independence, forcing these milestones back further in life. It also greatly reduces savings contributions for the future, through plans like 401(k)s. The pain of this debt felt by millennials is obvious – just look at how often this topic comes up in the presidential race today. Bernie Sanders, whose platform supports free public college, has had enormous success winning over younger people, who clearly need relief from their debt.
What can be done to help alleviate this burden on today’s Millennials? Good thing you asked. Smart employers have begun to realize the importance of student loan repayment when offered as an employee benefit. Not only does it bring relief to workers burdened by student debt, but it also provides the employer a competitive advantage when recruiting or retaining talent.
While the rest of the world takes notice of this issue, your company can do something to make a real difference for your employees. Contact Peanut Butter today to learn more.