Millennial Debt Load

In response to a specific question about the debt load carried by millennials here’s what I’ve learned:

• Millennials (defined as those born after 1981) carry a very heavy load of mostly educational debt:
  

  Our research using data from the National Financial Capability Study shows that two-thirds of millennials (those aged 23-35 in 2012) have at least one source of long-term debt outstanding—whether student loans, home mortgages or car payments—and 30% have more than one. Among the college-educated, a staggering 81% have at least one source of long-term debt.

  Not only do millennials carry debt, but they struggle with it. A majority report having too much debt, difficulty in making payments, and worries about it. Specifically, the ability to pay off student loans troubles more than half of millennials who have such loans. Low-income respondents tend to be more concerned than higher-income earners, but even 34% of millennials with annual household income above $75,000 doubt they will be able to repay their student loans. Moreover, even several years after college, the percentage of those worried about repaying student loans remains high. Fifty-four percent of millennials who are over age 30 and have student loans are worried about repaying them.

• Millennials may not be carrying more debt than previous cohorts:
  

  A chart from Deutsche Bank Economist Torsten Sløk shows that millennials, ages 20 to 35, have less debt than the same age cohort did in 2003.

  “It is an urban myth that the young generation today is more indebted, it is the older generations that have higher debt levels,” said Sløk in a note. “The reason is that since 2009 it has been difficult for Millennials to get a loan. As a result, 25 to 35 year olds today have less debt than in 2003.”

• Lack of credit-worthiness not preference is the main reason that Millennials have lower rates of homeownership than previous cohorts:
  

  Rising student debt — which results in a lack of available funds to put toward a down payment — is a primary factor in reduced homeownership among young people ages 25-34, according to Irene Lew, research assistant at the Harvard Joint Center for Housing Studies. In addition, delinquency and default on those loans means debtors have trouble qualifying for low interest rates or a mortgage.

Whether millennials’ and their parents’ investment in education will prove to be a good one remains to be seen. My own opinion is that most people, not just millennials, seek higher education because of the competitive advantage it gives them in looking for jobs. That’s a mug’s game.

For a quick, shorthand explanation of why it’s a mug’s game, there are more Indians with college educations than there are Americans period. And there are a lot with post-graduate degrees as well.