When it comes to student loan debt, the Millennial generation is used to setting records.
In 2012, student debt stretched to a record number of households – nearly 1 in 5 – with young adults bearing most of the burden. That figure was up from just 15 percent five years prior. In 2013, the total outstanding student loan debt approached $1.2 trillion, and the debt held by the federal government crossed the $1 trillion mark. In 2014, the effective default rate on student loan repayment rose to a record 21.9 percent, and the effective delinquency rate soared above 30 percent of borrowers who should be repaying their loans. The Class of 2015 left school the most indebted class ever, both in terms of the amount they owe (around $35,000) and the percentage who hold debt (71% of bachelor’s degree recipients).
Which brings us to the young adults who just ambled across the stage to pick up their diploma (and start the clock on debt repayment) in the last month. The International Business Times’ Julia Glub reports:
College students graduating this month across the United States can expect to feel nostalgic, field questions about their futures, and owe a lot for the education they just received. Student financial aid expert Mark Kantrowitz recently calculated that student borrowers in the class of 2016 are set to have the highest level of debt yet, at $37,172, the Wall Street Journal reported this week. This is up from about $35,000 last year.
“It’s unfortunate that college costs are going up and the student aid, the grants, are not going up at the same rate on a per-student basis,” Kantrowitz, publisher and vice president of strategy at scholarship site Cappex, told the Journal last year. “College is becoming less and less affordable, though it’s still just as necessary.”
For the 2015-16 school year, the College Board estimated the average tuition and fees to be about $9,410 at four-year, in-state public institutions. Room and board was about $10,140 annually. To afford this, millennials have taken out loans that often leave them delaying buying houses or getting married.
To be fair, the prognosis isn’t all negative. Even though the average debt went up 6 percent, the average starting salary went up to $50,651, a 5 percent increase, according to the National Association of Colleges and Employers. Similarly, the New York Federal Reserve reports that the median salary for recent college graduates went from $39,992 in 2014 to $43,000 last year.
Those increases will make it relatively easier to pay off the larger burden, but that also comes at a significant cost to the economy. Those pay increases, which would otherwise be spent on consumer goods, invested in stocks and bonds, or saved for the next downturn, will instead go back to the government. That’s a huge chunk of change being taken out of the economy, a problem that investors are keenly aware of.
“Total student loan debt in the U.S. currently stands at more than $1.3 trillion, a staggeringly large number that represents millions of college graduates unable to work toward financial independence from financial institutions,” angel investor Jeffrey Zucker told US News. “It’s not surprising that people with student loans are less able to invest their savings in profitable ventures.”
That’s not just bad for students, who don’t get to take advantage of investment-driven income, it’s bad for businesses who are starved for startup capital. Overall, venture capital decreased to $28.2 billion last year, from $31.1 billion in 2014. Likewise, small business loans—those written for less than $1 million—are 34.9 percent below pre-Recession levels, a $115 billion drop. Those trends mean less opportunities for young entrepreneurs to turn their idea into the next big company and a smaller window of opportunity for small business startups to become profitable.
All told, the Class of 2016 has a brighter economic future than many who came before it, but it comes with a hefty price-tag, one that may ultimately be paid for by suppressed economic growth.