For young people, student debt delaying milestones

Published: Friday, June 21 2013 3:30 p.m. MDT

When 26-year-old Lindsay Woodruff ends her work day, she comes home to her husband and two daughters in Tipp City, a small town in southwestern Ohio. But greeting her at the door are two other family members, her mom and dad. Woodruff and her family are living in her parents’ home until they can pay off her student loan debt.

Woodruff, the assistant director for the education nonprofit group Kids Read Now, does not fit the stereotype of a lazy, self-absorbed member of what's been called the "me me me" generation. She is working full-time and is three credits away from a graduate degree. “There’s a lot of things we’d like to be doing,” she said. “We make a decent income. But we’ve set this benchmark that we’re not going to do anything big until this student debt is paid off.”

Woodruff’s financial situation is familiar for highly educated young people across the country. According to a recent study from the Federal Reserve Bank of New York, young consumers are delaying major purchases like homes and cars because of their student loan debt. Despite the fact that a college education leads to higher earning potential, those 25 to 30 who took out student loans are less likely to be able to make these major purchases than their peers with no student loan debt. College graduates are also increasingly living at home and delaying marriage and childbearing. For highly educated young people, student loans have put their life on pause.

Adulthood interrupted

The economic downturn has hit the millennial generation hard. The Bureau of Labor Statistics jobs report for May showed that among those 18 to 34, unemployment was slightly more than 10 percent. According to the Economic Policy Institute, a liberal economic think tank, between 2007 and 2012, the wages of young college graduates dropped 7.6 percent. Compounding the employment situation are the high levels of debt young people have incurred. A study from the Federal Reserve Bank of New York by economists Meta Brown and Syndee Caldwell found that the share of 25-year-olds with student debt has increased from just 25 percent in 2003 to 43 percent in 2012, and the average student loan balance among those 25-year-olds grew by 91 percent over the period, from $10,649 in 2003 to $20,326 in 2012.

Obtaining a college degree is still a path to higher lifetime earnings for this generation. But the necessity of taking on student debt is impacting their lives in profound ways. Brown and Caldwell looked at mortgage debt of 30-year-olds over the past 10 years. They found that historically, those with student debt were more likely to have mortgage debt than those without student debt, which makes sense as those with higher educations would logically have higher salaries and more opportunity to buy a home.

However, since the recession, the trend has reversed, and now 30-year-olds with student loan debt are less likely to own a home than those without that debt. Brown and Caldwell found a similar result when they looked at the automobile debt of 25-year-olds. While historically, student loan borrowers were 3 or 4 percentage points more likely to have a car payment, since the recession hit, those with student loans are now less likely to be able to afford having a car. Consequently, student loan debt is keeping a generation of highly educated consumers from making major life purchases.

And it may not be just big economic purchases that young people are delaying due to the poor economy. According to a survey conducted last year by the Pew Research Center, a polling and research nonprofit group, young people have been delaying major milestones in their personal lives as well. In that study, 31 percent of those 18 to 34 who were surveyed said they have postponed either marriage or having a child, with 20 percent saying they have put off getting married and 22 percent saying they have postponed having a baby. Almost a quarter of the survey respondents said they had moved back in with their parents after living on their own.

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