“We want to give you a better life than the one we had.” This is a phrase many millennials have heard at some point during their life from their parents, especially with respect to today’s average debt.
Yet, both the millennial and post-millennial generations (Generation Z) are on track to becoming the most educated yet, with one major problem—they both face a major student loan debt catastrophe. And not all debts are created equal—especially when we talk about student loans.
While the millennial generation has become all too familiar with this crisis, often just accepting what seems to be an impossible solution—more Gen Zers are starting to think about how they will pay for college and pay-off their debts, hoping to learn lessons from the mistakes millennials have made.
Two-months into 2020, millennials still struggle to embrace the “better life” that their parents have afforded or wanted to provide for them—keeping them up at night wondering if they will ever dig themselves out of financial crises.
A recent study of 1,000 undergraduate and 1,000 postgraduate degree holders revealed that, of those with student loans, 89 percent see their debt as a financial burden. It’s more than just living check to check—the sacrifices that have had to be made speak for themselves:
- Skipping a social gathering due to lack of funds—39%
- Finding a side hustle / alternate source of income –39%
- Taking a job they hated, but paid well—36%
- Skipping major life events due to travel costs—36%
- Skipped a meal—35%
- Living in a ghetto-ass neighborhood for cheaper rent—35%
- Living with parents—29%
Respondents were even willing to take drastic steps if it meant wiping their debt slate clean:
- “I’d Spend a Week In Jail” –39%
- “I’d Shave My Head” –51%
- “I’d Walk to Work for a Month” –49%
- “I’ll Never Drink Caffeine Again” –40%
- “I’d Relive High School Over Again” –40%
- “I Won’t Take PTO From Work for a Year” –40%
Wow, just wow.
With more than 44 million Americans struggling to pay off what is estimated to be close to $1.6 trillion of student loan debt in the U.S., according to a report from credit rating agency Moody’s Investors Service. Consequently, student loans have become one of the major contributing factors to the U.S. consumer debt today.
Think about it—millennials are currently responsible for $497.6 billion of our nation’s total student loan debt—no wonder so many sell their souls to the government for that ten-year loan forgiveness benefit. But what’s even scarier is the failure to consider the 11 percent default rate—which is the highest of any debt category.
#1 — The Department of Education Cost Trajectory is Unsustainable
Government student loans work in the following manner. The programs charge the students fees and interests, which makes them profitable and budget-neutral. In Obama’s time, the policies have changed rather drastically. What we know as an income-based repayment plan (IBRP) has made the cost trajectory unsustainable. IBRP is available to new borrowers since 2014, allowing the qualified students to cap the repayments on a monthly bases at an amount based on their family size and income. Obama also lowered the cap to 10%.
As a result, a DOE financial report in 2017 has projected a shortfall of $36 billion compared to a number of $8 billion in the previous year. Despite the great efforts of Obama, borrowers seem to be taking a lot of advantage of the system.
#2 — Tuition Costs Are Devastating
The economic burden passed onto students who want to obtain a degree is simply too big.
Right now, students owe 1.6 trillion, which makes for over $620 billion more than the credit card debt in the country. Despite the many government efforts to make education free, the costs for education are not even slightly reduced. In fact, it can be said that they are growing on a continued basis, making education the most expensive it has ever been.
#3 — High Dropout Rates
If all borrowers managed to graduate in time to pay off those loans, the burdens might become more sustainable. However, a bit over half of all college students graduate within six years of entering. Many of the college students, especially the low-income and minority students tend to drop out in the first years. Even so, they still carry the huge debts with them, without any viable way to pay them back.
It’s hard to graduate while you have to hold down a job and tackle everything at the same time. The American Dream certainly needs to return to our educational system.
For those who come from a low-income family and cannot afford to go to university and learn the necessary skills, there are resources out there that allow individuals to “independently study.” While some might consider this unorthodox, in the middle of the exhausting assignments and the obligation to make some money, this is the best thing that happened to students. Don’t drop out. Write more papers.
#4 — CTE Neglect
Most state and local programs for student loans neglect Career and Technical Education (CTE) and other vocational programs that are intensive and work-focused. As a result, the majority of Americans lack a diploma, even a community college one. The emphasis in the country is put on high-level institutions that demand high fees and often, big student loans. With enormous debts, students start their adult, responsible life already facing impossible income prospects.
Failing to Live Up to Our Predecessor Generation
It is for this reason that many millennials have failed to achieve the same economic status their parents had at their age—or rather, the economic status parents had hoped their children would have when they reached a certain age.
Many individuals find themselves troubled to purchase and own their own homes, start their own families and even provide for a comfortable life—and of course, create a savings account that lives to provide for the next generation.
With an increasingly overwhelming amount of information for Gen-Z students to take in, where should they be focusing their time on?
Well for one, it’s important for them to carefully consider the path that will be most beneficial to them, leading them towards a prosperous and fulfilling life—however they define that.
While college may be the right choice for many, it isn’t the only choice. It’s not a surprise that most college degrees aren’t worth the $50,000 debt you cough up just to get your diploma and get drunk for four-years. The unsettling truth is that recognizing that ahead of time could save you from a life of stress and financial servitude.
The future is brighter for the next generation, but they need to be mindful of how to achieve their dreams within reason.