Recently, I wrote about Millennials – usually defined as the generation born between the early 80’s and late 90’s, and how this demographic is purchasing homes at lower rates when compared to young adults in generations past. While there are several factors at play that have resulted in th
is trend, one factor that is being discussed is the role that student loan debt plays in a young adult’s ability to make a down payment.
Most adults who have purchased a home, or even those who have merely considered buying a home, know that the down payment typically requires disciplined and regular savings. The college loans that so many Millennials are now repaying, may prohibit their ability to save for this down payment, at least in the short term.
However, from a long-term perspective, these same loan repayments that may limit the amount that Millennials can save now, continue to have a high return on investment when considering income trends. The US Bureau of Labor statistics and the US Department of Labor have indicated that with educational attainment, average income increases, and unemployment decreases. This means that the more education a person has, the more income they are likely to earn and the more likely they are to be employed. Research has also shown that there is a positive association between educational attainment and job satisfaction.
We often hear staggering numbers surrounding the topic of student loan debt, like:
- The total outstanding student loan debt surpassed one trillion dollars in 2014
- About half of students relied on loans to pay for their education
- The average student loan debt for students is somewhere around $30,000
With numbers like these, student loans are often associated with the word “burden”, or “drowning”. But, when you consider that “in 2013 median earnings for young adults with a bachelor’s degree were $48,500… [and] $30,000 for those with a high school credential”, and that the difference in lifetime earnings between those with a bachelor’s degree and those with a high school credential is somewhere around $830,000, according to a study by the Federal Reserve Bank of San Francisco, then a college loan should be talked about in terms of the return on investment, which is significant.
Millennials are attending college and graduate school at higher rates than earlier generations of young adults, which means that the number of families that rely on loans to fund education has increased, as reported(PDF) by the Council of Economic Advisers in the Executive Office of The President. While Millennials may feel “saddled” with student debt now, they should take comfort in knowing that trends suggest that this investment will help them prosper financially in the long-term.
