Long Term Effects Of Student Loans For Millennials


The Long Term Effects of Student Loans for Millennials

Student loan debt is having a profound impact on the financial futures of millennials. With the cost of college tuition skyrocketing over the past few decades, more and more students have had to take out loans to finance their education. While a college degree generally leads to higher lifetime earnings, the burden of student loan debt is causing many millennials to fall behind financially compared to previous generations.

Millennials Are Taking on More Debt

Millennials are taking on significantly more student loan debt than past generations. The average debt per borrower has ballooned from $18,550 in 2004 to $28,950 in 2014, an increase of over 50% . Approximately 69% of the college class of 2014 had student loan debt, compared to less than 50% just 10 years prior.Several factors have contributed to the rise in student borrowing:

  • College tuition costs have been growing at around 8% per year, more than double the rate of inflation. This has far outpaced growth in wages.
  • State funding for public universities has declined, shifting more of the cost burden to students.
  • More students are enrolling in college now than in the past.
  • The Great Recession led to job losses for many families, making it harder to pay tuition out of pocket.

As a result, student loans often make up a sizable portion of a millennial’s overall debt load after graduation.

The Debt Burden Hinders Saving and Homeownership

High student loan balances make it difficult for millennials to accumulate savings or invest for the future. A study by LIMRA found that $30,000 in student loans can reduce retirement savings by over $300,000 by age 65.With less discretionary income, millennials have cut back on contributions to retirement accounts. Nearly 50% of millennials with student loans have no retirement savings at all.Student debt has also delayed traditional adult milestones. The Demos study showed millennials with student loans have lower homeownership rates compared to debt-free peers, 52.3% vs. 58.8% .Getting approved for a mortgage is harder with existing student loan debt eating into your debt-to-income ratio. And it’s tough to save for a down payment when a large chunk of your paycheck goes towards servicing loans every month.

Millennials Expect to Be in Debt for Decades

For many millennials, student loans will follow them well into middle age and beyond. Among borrowers aged 25-34, the average time expected to pay off student loans is 21 years.With extended repayment periods, interest continues accruing on principal balances for decades. One study found that a 4-year degree can end up costing over twice as much due to interest payments over a 20-year term.The result is that some millennials feel they will never be free of their student debt burdens. This lingering debt weighs on financial decisions and causes stress for borrowers.

Women and Minorities Are Disproportionately Affected

While all millennials with student loans face financial challenges, women and minorities tend to be hit the hardest.Women have a tougher time paying off debt after college in part due to the gender pay gap. One study found that women hold nearly two-thirds of America’s student loan debt.Black millennials are also more likely to have to rely on student loans, and typically borrow more per year while enrolled. This debt burden compounds existing racial wealth gaps.

Potential Long-Term Consequences

The full effects of high student debt on millennials’ finances may not be evident for decades. But early research points to a number of potential long-term consequences:

  • Delayed retirement: With less savings, millennials will likely have to work longer before retiring. Half of student loan borrowers think they will need to delay retirement because of loans.
  • More income inequality: High achievers whose careers allow them to quickly pay off debt will pull further ahead of peers stuck making loan payments for years.
  • Less entrepreneurship: The monthly burden of student loans makes it riskier for millennials to start their own businesses.
  • Reduced investment in the economy: Money spent on debt payments isn’t available for buying homes, cars, or other goods that stimulate economic growth.
  • Lower net worth: Millennials who are diverting money to student loans instead of savings or investments will have lower assets over time.

Finding Solutions

With the scale of the student debt crisis, solutions are clearly needed to help millennials and prevent future generations from suffering similar fates. Here are some options that policymakers and experts have proposed:

  • Make college more affordable by increasing state funding for public universities and expanding grants and scholarships.
  • Allow student loans to be discharged in bankruptcy to give borrowers an escape hatch from unmanageable debt.
  • Revamp income-driven repayment plans to make them more generous and accessible.
  • Provide student debt cancellation, at least for those most in need or with the highest debt burdens.
  • Improve financial literacy education for high school students to promote responsible borrowing.
  • Incentivize employers to contribute to student loan repayment as an employee benefit.
  • Reform the student loan system by having repayments automatically deducted from paychecks as a percentage of income.

The student debt crisis is clearly a multifaceted issue without a single, simple solution. But taking steps to ease the burden on millennials could pay dividends by allowing them to more actively participate in the economy and work towards financial stability.


While college remains a worthwhile investment for most, rising tuition costs and excessive student borrowing have put millennials at an economic disadvantage. The long-term impacts of student loans are impeding millennials from achieving traditional financial milestones and accumulating wealth.With smart policy reforms and financial planning, millennials can hopefully find a way to pay off their loans without sacrificing their entire financial futures. But action is needed now before the student debt crisis further widens inequality and inhibits economic growth.

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