Student loan debt is becoming a big thorn in the side of many Millennials. The average student loan debt has climbed to $27,500, according to data from the Project on Student Debt. In 1993, less than half of students graduated with debt. For those who did, their debt averaged $9,350 (or about $15,000 in today’s dollars).
“Rising tuition costs and an anemic job market are feeding this vicious cycle, as a generation with more student loan debt than any other is struggling to find its economic footing,” USA Today reports.
A recent report by the Consumer Financial Protection Bureau suggests student loan debt is having a ripple effect throughout the economy, prompting millions of Millennials to put off home ownership, divert money from retirement accounts, and forgo securing car loans.
Some say the student loan debt could threaten the standard of living for this generation.
Many young adults are being forced to move back home with their parents, which is likely contributing to a decline in economic activity by them not forming their own households, says Mark Zandi, chief economist at Moody’s Analytics.
“The more homes that are built, the more things that are purchased to put in those homes,” Zandi says. “If you don’t have households forming, the economy is going to struggle.”
Nearly 17 percent of men ages 25 to 34 were living in their parents’ home in 2012, according to Census Bureau data. About 10.4 percent of women in that age group were living with their parents.
Student loan debt is a hinderance to those looking to save up for a down payment to purchase a home. As a result, the pool of first-time home buyers is shrinking.
“The housing market is recovering, but it’s recovering without the first-time buyers,” says Lawrence Yun, chief economist for the National Association of REALTORS®. “Right now first-time buyers comprise about 30 percent of the market. Normally it’d be closer to 40 percent or 45 percent.”
Millennials may find that their student loan debt may hinder them from qualifying for a mortgage too.
“The mortgage underwriter considers that another required monthly payment, which means the larger the student loan, the less likely you are to qualify,” Yun says.
Source: “Millennials’ ball-and-chain: Student loan debt,” USA Today (June 30, 2013)