| October 2, 2015

Research of the Week: Life Delays Due to Student Debt

Millennials held back in life because of education costs.

Each week, Consolidated Credit searches for financial research that can help you deal with your debt and budget. This week…

The interesting study

The newest generation of adults is known for going their own way when it comes to money, largely attributed to the fact that most of their generation came of age during the Great Recession.  So as a generation, they’re doing things like delaying marriage in favor of getting a first mortgage and starting retirement planning in their 20’s.

Now a new study from IPI brings to light exactly why they feel the need to take such actions – and the main culprit is crushing student loan debt.

The big result

The headline statistic from the report says it all.

“Faced with crush of student loan debts, only 2 in 5 Millennials save for retirement, many delay major steps in life.”

So while the previous retirement survey reported 57 percent of Millennials feel in control of their financial future, this report seems to indicate that the ones who don’t may still be struggling with student loan debt.

 

The fascinating details

Here’s what the survey found:

  • 49% of survey respondents are still paying off student loan debt
    • 13% of that number are stuck with a tab of $50,000 or more
    • 16% have $20,000-$50,000 – the average debt load at graduation is currently $28,400
  • Only 38% of these Millennial survey takers are actively saving for retirement – one third blame student debt for their delay in starting to save
  • While 36% of these survey takers report student debt has no financial impact for them currently, the other 64% are delaying major life steps because they have too much debt to pay off as it is:
    • 29% have delayed buying a home
    • 26% have put off buying other big purchases, like cars
    • 22% cancelled continuing their education
    • 19% moved back in with their parents
    • 17% are waiting to start their family, even if they’re already married
    • 12% have put off getting married entirely

What you can do

While the two retirement reports seem to contradict each other, they’re actually telling part of the same narrative.

“Millennials that have managed to pay off any student debt they took on to further their education are typically on track with their financial goals,” says Gary Herman, President of Consolidated Credit, “but those who haven’t yet eliminated their student loan debt are crippled by the burden and unable to make headway in other areas of their lives.”

Herman advises those still struggling with student debt to look into options for student loan consolidation and loan forgiveness.

“Millennials with student debt are often spending a significant portion of their income to cover their loan payments and as a result they have little left for saving,” Herman explains. “However, even if you can manage to meet your payment obligations, you may still benefit from consolidation.”

Student loan consolidation is similar to credit card debt consolidation – you roll all of the payments for a certain type of debt into a single monthly payment that’s lower in total than what you pay on all of your debts individually. So you have one payment that covers all of your debts.

The difference between the two types of consolidation involves how the payment is reduced. For credit card consolidation, the interest rate applied to the debt is reduced, so you get out of debt faster even though you pay less each month. However, interest rates on student loan debt are set by the federal government, so they can’t be reduced. Instead, the term of the loan is generally extended so you pay less each month over a longer length of time.

In most cases, the consolidation loan has a term of 25 years instead of the standard 10-year term for most federal student loans. This doesn’t mean you’ll be paying for all those years – if you qualify for loan forgiveness then you’re remaining balances are forgiven after 10 years of payments. However, even if you can’t qualify for forgiveness, you can typically eliminate your balances early.

The benefit is that consolidation lowers you payments now. That means you have more money available for saving so you can do things like set up monthly contributions to a retirement account or save up the money you need for a down payment on a first home. By making your student debt load more manageable from month to month, it allows you to stop the delays on the rest of your life.

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