According to a recent Time Money article, a new report shows that younger adults burdened with student debt are falling behind their parents’ generation in financial stability. The report compared the wealth of 25 to 34-year-olds in 2016 with the same age group in both 2013 and 1989. One bit of good news: compared with 2013 age group, the 2016 folks made some gains in median income, retirement savings, and assets. But the gaps are still rather large when you compare wealth and earnings between most millennials today and the same age group 25 years ago.
College Degrees and Debt
The study also found a possible correlation between net worth decline and those who have a college degree and debt. It’s no surprise that student debt factors into the equation. Even with relatively low unemployment and stock market growth over the past few years, young professionals still struggle, per Tom Allison, who authored the report and is deputy policy and research director for Young Invincibles. The report points out that student loans make up 74% of the debt owed by millennials in 2016, compared to just 10% in 1989.
Still, even if the age groups did not have student loan debt (they paid it off, didn’t need to borrow, etc.) their net worth took a plunge. Not everyone is arguing, however, that a drop in net worth is a terrible thing. According to Matt Chingos, who is the director of education policy at the Urban Institute, the drop may be okay if it is due to a long-term education investment. He states that unlike a home mortgage where the value of the home tends to balance out the asset sheet, the value isn’t going to show up on any asset sheet. In other words, it’s a long-term investment.
Home Ownership and Student Loan Debt
Homeownership has also declined among millennials and, according to the report, student debt played a role. The report cites that homeownership rates among college graduates without debt and those who never attended college stayed somewhat steady. Other studies have alluded to the effect of student loan debt on milestones like purchasing a home but have found different results. For example, one study published last year in The Journal of Consumer Affairs found that young professionals with student loan debt have the same likelihood to own a home as those without debt. One thing is for certain from the article: paying off student loan debt is positively linked with a higher likelihood of home ownership.
A college degree (on average) is still worth the investment. There are arguments to be made about the ever-increasing costs of education and the lack of benefit obtaining the education provides, but those arguments will have to be saved for another day and a different article.