There are plenty of difficult financial waters to navigate in young adulthood, but unfortunately, a growing number of Americans are shouldering a massive debt burden that is quite literally changing the way they live their lives. The latest data shows that debt is a top concern for members of the Millennial Generation, and the problem is only getting worse.
Troubling Poll
A recent Allstate/National Journal Heartland Monitor poll indicates that nearly 30 percent of Millennials just starting out on their own identify paying off student loans as their biggest financial challenge.
The same poll also shed some light on how much the modern economic environment is different for Millennials than it was for previous generations. Survey respondents from older generations indicated that the biggest financial challenges when they first started out were making ends meet and saving for major purchases.
Perhaps the most troubling data point from the poll was that 38 percent of Millennials say that, when it comes to major life decisions such as when to get married, buy a home or have children, debt has affected their decisions "a great deal."
More Data
As surprising as the data from the Allstate poll is, it is far from the only illuminating statistical research on Millennial debt. Another 2015 study by Bankrate.com found that a staggering 56 percent of respondents between the ages of 18 and 29 who have student loan debt reported delaying major life events because of their debt burden.
Another survey by the National Realtors Association found that 12 percent of recent homebuyers said that they delayed the purchase because of debt. Of the Millennials that did so, about half indicated that student loans were the source of that debt.
A recent iQuantifi study attempted to put a number figure on Millennial debt burden. According to the study, Millennials aged 21–25 shoulder an average of $13,116 in debt. Millennials in their late 20s carry $46,622 in debt and Millennials in their 30s harbor an average of $69,552 in debt.
How Bad Is The Student Loan Debt Problem?
Incredibly, the total amount of U.S. student loan debt eclipsed $1.2 trillion earlier this year. In just one decade from 2003 to 2013, the average cost of college tuition ballooned by a whopping 79.5 percent. Not surprisingly, the average student loan debt grew right along with it, climbing by an average of 11 percent per year from 2009 to 2014.
More Than Just Student Loans
A 2014 Wells Fargo study found that student loans are only a part of the debt burden that the Millennial Generation is carrying. According to the study, about half of Millennials spend more than 50 percent of each paycheck paying off debt, and 56 percent reported that they are living paycheck-to-paycheck.
However, the Wells Fargo study found that the top two sources of that debt are not student loans, but rather credit card debt and mortgage debt.
Supporting Parents
As if the debt burden from credit cards, mortgages and student loans weren't enough, 20 percent of Americans are also financially supporting a non-spouse adult family member. For Millennials, this typically means supporting an elderly parent. A new TD Ameritrade study indicates that the average Millennial providing financial support to one or both parents is devoting $18,250 per year of their budget to the cause.
This type of support is often seen as a top priority and can compound the Millennial debt problem.
What Can Be Done?
A large part of the debt burden Millennials face appears to be the result of out-of-control tuition costs. Until the cost of a college education becomes more affordable, young adults must simply do their best to minimize and manage their debt burdens.
One way to be smart about student debt is to use one of three Federal Student Aid income-driven repayment plans, which can allow remaining federal loan balances to be forgiven by the government after 20 years of on-time qualifying payments.
In addition, Millennials should take advantage of what will likely be the last few months to refinance or consolidate debt before the Federal Reserve starts raising interest rates. Although fixed rates are often higher than variable rates, they could save a lot of money in the long run since rates are currently historically low.
Finally, the best approach to debt is often the simplest: Create and maintain a monthly budget and devote as much of the monthly paycheck as possible to paying down debt. Remember to start with debts that have the highest interest rates, which are often credit card debts.
Image Credit: Public Domain© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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