As ZeroHedge readers are doubtless aware, massive student loans have become an anchor around the necks of millions of young graduates – who are finding it increasingly difficult to break out from under the yoke of crippling debt.
Outstanding student debt has more than doubled since the 2009 lows alongside the world’s biggest experiment in synthetic economic growth thanks to quantitative easing – standing at nearly $1.5 trillion.
And times are still “good” so to speak…
As we reported in January, nearly 40% of student loans taken out in 2004 are projected to default by 2023 according to a report by the Brookings institute.
This is a major problem – one which will either resolve through a resurgent economy, or tacking another Trillion plus onto the national debt once bankruptcy laws are changed and debt forgiveness becomes the next generation’s problem (you don’t actually think the banks will take the hit, do you?)
Until then, young Americans are drowning in debt, unable to improve their standard of living, and are significantly worse off than their parents generation.
Millennials are now graduating with excessive levels of debt – often used not just for tuition, but living expenses as well. Their baby boomer parents, meanwhile, enjoyed entering into their 20s with little to no debt, significantly high purchasing power – enabling a typical family to afford a mortgage and a decent standard of living on one salary. Boomers, unencumbered by crippling debt, were also able to begin saving much earlier – thus taking advantage of compound interest.
The math isn’t looking good for the kids… Using a an assumption of $40,000 in debt upon graduation (the class of 2016 average was $37,172 and it’s growing):
For example, say you graduate with $40,000 in debt and you owe a 4% interest rate for 15 years. While the federal government expects the loans to be paid back in 10 years, it takes the average Wisconsin graduate 19.7 years to pay off a loan for a bachelor’s degree. Therefore, it’s a reasonable example. In this mock example, monthly payments would be $295.88 and $53,257.53 in total. If you don’t have student loans at graduation like many baby boomers and you put $295.88 in a diversified portfolio which returns 6% per year, you will have $86,477.68 after 15 years. Therefore, the difference between someone with student loans and without them ends up being $139,735.21. The difference grows exponentially as the student loans grow because the interest paid and the returns on the potential savings increase. –UPFINA
The bottom line: it’s taking much longer for new graduates to dig their way out of debt, start saving, and earn enough to retire comfortably. It’s simply not penciling out anymore for many Americans.
About that inheritance…
Millennials drowning in debt hell are also facing a shrinking inheritance, should they be so fortunate to receive one – as their boomer parents are plowing through their savings and chipping away at the equity in their homes. Eight years of low interest rates have also drastically undermined the return savers and retirees were counting on.
As we reported yesterday, a study released by GoBankingRates reveals that older people planning their retirement have cause for concern. Forty-two percent of Americans are facing their golden years with less than $10,000 in savings. A lack of savings and planning has reduced what should be an enjoyable time in seniors’ lives to a period of stress and worries for many. (h/t Virginia Fidler via GoldTelegraph.com)
A 2007 study by the Insured Retirement Institute found that 24% of boomers have no retirement savings – the lowest number since the study started in 2011.
Only 55% of Baby Boomers have some retirement savings and, of those, 42% have less than $100,000. Thus, approximately half of retirees are, or will be, living off of their Social Security benefits. –Barbara A. Friedberg
In other words:
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