Remember the mild panic a few years ago over millennials’ spending habits? They were accused of killing everything from cable television to breakfast cereal — more or less because they refused to spend their money on those things. But research soon confirmed what many of us already suspected: It wasn’t that millennials didn’t want to spend their money on these things — they simply didn’t have the money to spend.
There were many reasons for this, from stagnant wages to rising living costs to recessions that seemed to roll around every decade. But the biggest factor, by far, was that they were carrying then-record amounts of student loans. Turns out that sending an entire generation into an unsteady job market with an average of $37,000 in debt can be a bit of a drag on the economy. Weighed down by their student loans, millennials are now marrying later, having fewer kids, and have lower rates of homeownership and lower levels of overall wealth than any generation since the Great Depression. And that’s not even the bad news.
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The bad news is that the students who are in college right now are taking on even more debt than millennials did — and that’s going to have serious consequences on the economy of the near future.
A new study by Real Estate Witch surveyed 1,000 college students about their financial habits, debt burden, and expectations for their post-college job market. Let’s look at some of the numbers.
Students Are Facing Diminishing Prospects - But Taking On More Loans
Not all college students are headed to campus in the fall. According to the Real Estate Witch survey, 31% of undergraduates plan to live with their parents this year. Colleges probably won’t be too surprised by this development; many of them are projecting a 20-25% drop in enrollment this fall. But anticipating it and being able to handle it are two different things.
Nosediving enrollment coupled with the cancellation or severe curtailment of college sports — one of the biggest revenue generators at most public universities — means that the higher education system could be in for one of its hardest years ever.
That may be why so many colleges have refused to budge on tuition. Of the 100 schools surveyed, approximately 90% are either going fully online or partially remote through a hybrid of in-person and online instruction — yet just 3% of universities plan to reduce their tuition this fall. In the tug-of-war between colleges charging full price for reduced services and students under financial pressure who are leery about returning to campus, something will have to give.
So far, the students are getting the short end of the stick. Though many of them are moving back in with parents, their financial obligations aren’t easing. Renters, in general, have been hit hard by the coronavirus pandemic, but it’s been especially bad for student renters. Escaping from their leases has been very difficult; although 75% tried to cancel their lease agreement for the fall semester, only 45% succeeded. That means 30% of college students could be stuck paying for housing they’re not even using.
But as student expenses remain flat or even fall, they’re taking on more debt.
The overall percentage of students taking on debt to pay for school has stayed steady at 48%, which is nearly the same as last year. But of that 48%, half of them are borrowing more money for the fall semester. And 33% of that half is borrowing at least $10,000 more compared to 2019. Considering that the average student debt burden is just over $37,000, that’s a nearly one-third increase in a single year.
Why are they taking on more debt? There are a number of reasons.
A Floundering Job Market Hits Multiple Generations
One big factor is that the job market is rough right now — not only for the students, but for their parents, too. More than 60% of college students have a job to cover expenses, and almost a third of undergraduates work more than 22 hours a week. But according to the survey, 56% of students reported losing their job as a result of the coronavirus pandemic.
The situation is not much better at home. About a third of college costs are covered by parents, meaning that even many students who take out loans are counting on parents to chip in also. But parents are losing their jobs, too; of the students who are counting on financial help from their parents, 38% said that a parent’s job/income loss impacted their ability to pay for college costs this year.
And who knows when the job market is going to recover? Many experts say a full recovery could take as long as a decade. As of May 2020, there were approximately 5,266,000 job openings in the U.S., down from 7,245,000 the previous year. That’s a stomach-turning plunge, and it sounds like college students are bracing for a rough few years; 71% of students surveyed said they believe the coronavirus pandemic will impact their ability to begin their careers after college.
That may be a consequence of their education as much as the job market. The survey also revealed that students have a very low opinion of online-only education. Only 34% of students said they’re extremely or moderately confident that their college can provide the same quality of education as in normal years. Worse yet, 81% of students think that online courses provide a subpar education compared to in-person instruction.
The True Costs of Debt
As a whole, the survey paints a disturbing picture for college students. They’re taking on a lot more debt for an education they expect will be of subpar quality to enter a job market they expect to be tighter than ever. So, will it be worth it?
It can be — a college degree still opens a lot of doors — but much of what we’ve learned about students who carry college debt into adulthood should give us pause. Millennials have had to delay buying their first home for an average of 7 years because of their student loans; considering that student debt has tripled just since 2016, the next generation will have to wait at least a decade longer to buy a home than their predecessors — even with discount agents and home buyer rebates that are available today. Many will likely also have to marry later, if at all, and may have even fewer kids than previous generations to save money.
In the end, that means that the debt today’s college students take on doesn’t just affect them - it affects us all.