Millennials and the Student Debt Drag
A recent Federal Reserve Bank of New York (FRBY) study suggests that millennials are retreating from big ticket purchases. After examining the trends, the study found that student debt reduces other types of borrowing such as mortgages and auto loans. After taking a closer look at the student debt numbers, it appears that the buying power of millennials has been significantly impaired. The majority of students are now graduating college with a negative net worth. This purchasing behavior shift could also be a symptom of the ongoing decline in disposable income growth.
The following statistics from FRBNY frame the issue students are facing:
student debt has increased from $260 billion in 2004 to $1.2 trillion in 2013
an estimated 37 million Americans have outstanding student loans
the average student debt upon graduation has increased from $9,000 in 2004 to $30,000 in 2013
Matt Taibbi’s article Ripping Off Young America: The College-Loan Scandal, in the August 2013 edition of Rolling Stone magazine, sheds light on the hardships facing college graduates as education costs are spiraling out of control.
It is worth noting that seven million of those 37 million borrowers are currently in default. The outstanding student debt now dwarfs both outstanding auto loans ($800 billion) and credit card debt ($700 billion). As student debt levels have quintupled over the last decade, it is fair to assume that it’s having a significant impact on the U.S. economy and the way millennials will consume in the future. The real question is whether this is a permanent or a temporary shift in consumer behavior?