What Gen Z’s Future Looks Like With Student Debt Versus Millennials
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The income gap between those with a college degree and those without a college degree has widened since the birth of older millennials – and it has only widened since Gen Z arrived in Canada. the scene.
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“Both generations grew up with a two-generation ‘requirement’ to earn a bachelor’s degree for jobs paying above hourly wages,” said Dan Rooker, CFP, CSLP and consultant at Student loan planner.
The result is a country with $ 1.57 trillion in student debt, according to EducationData.org. Millennials average about $ 38,877 in student loan debt per borrower. With the older Gen Zers already out of college and entering the workforce laden with student debt, will they fare any better than their older millennial siblings? GOBankingRates asked the experts.
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As a group and as individuals, Gen Z’s debt is manageable – for now
Millennials hold nearly a third of the 13-figure student debt in the United States. Gen Z, on the other hand, is only responsible for just over 7%. That’s not a particularly telling statistic given that the youngest Gen Z aren’t even 10 years old.
But as an individual, the average Gen Z only has $ 17,338 in student loans, compared to just under $ 39,000 for the average millennial. This statistic is telling – it reveals that, on average, Gen Z owes less than half that of its Millennial seniors.
But will this trend continue over time?
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Sore loans force young graduates to make tough career choices
Generation Z is on its way to becoming the most educated generation in history, according to the EducationData report. But the report also says Gen Z are less likely to be in the workforce, which will likely delay their loan repayments. But as lenders grow impatient, older Gen Zers are already having to compromise on their careers.
“Student loan debt is a big driver of Gen Z career choices, with the majority of students saying they will graduate with student loan debt,” said Olivia Tan, personal finance coach and co-founder of CocoFax. “This is a trend that I have personally observed. In fact, an overwhelming 61% of students would take a job they are not passionate about because of the pressure to pay off their student loans. ”
Millennials have caught a perfect storm that will hopefully skip a generation
Michael Lux, millennial lawyer and founder of Sherpa student loan, has defended borrowers for nearly a decade. Its general consensus is that “student debt levels will be even worse for Generation Z” and that “university will be even more expensive and more difficult to pay off”.
But the jury is certainly still out – and there is no guarantee that the younger ones will receive the same bad hand as their older counterparts.
“Things have gone badly for millennials because college costs have risen much faster than salaries,” Lux said. “Support from state governments has also declined dramatically. “
Additionally, today’s students borrow in a much more streamlined and regulated environment.
“Gen Z borrowers should expect better loan service and less complicated rules,” Lux said. “Many millennials navigated complicated student loan rules on their own and often received bad advice from their loan officers. While there is still a lot of room for improvement, lawsuits to hold loan officers accountable and efforts to simplify federal student loan repayments will make loan management easier for Gen Z. ”
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Gen Z also have much better long-term options
The world before COVID-19 and the Great Recession, when older millennials took out their loans, is an old story compared to today’s borrowing landscape. It’s not perfect, but things have improved.
“Generation Z is ahead of Generation Y with the number of options available to manage student loans,” said Ryan O’Donnell, Strategic Partnerships Advisor with Labor benefits. “When I graduated from college in 2003, I received an invoice in the mail and wrote a check to cover the amount owed. “
“Gen Z borrowers have better federal repayment plans,” he said. “When many millennials graduated from college, the best available federal repayment plan was charging 15% of their monthly discretionary income. Today, Gen Z borrowers have three different plans that charge just 10% of their monthly discretionary income.
And the scenery may soon become even more indulgent.
“Discussions are underway over a plan that would charge only 5%,” Lux said. “These changes mean more manageable monthly payments for Gen Z.”
In addition, Gen Z borrowers will benefit from a larger student loan discount than the previous generation.
“Federal income-based repayment plans are much better now than they were when millennials started repaying,” Lux said. “With plans like IDR for new borrowers, Gen Z will get lower monthly payments and qualify for a student loan forgiveness faster. The end result will be a lot more student loan debt cancellations. “
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Whatever the generation, the human toll never changes
Lauren DeVries, who graduated from the University of Wisconsin-Madison in 2016, is pursuing an educational path that has forced her to go into heavy debt. His story is familiar to anyone who borrowed money to pay for their education.
“My monthly payments for my undergraduate loans are currently $ 300 per month,” DeVries said. “It’s one of my biggest expenses every month – even groceries for an entire month cost me less than my student loans. “
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When asked if she had more debt than expected, her answer was “yes and no”.
“I was a first generation college student who received a bunch of awards, but no one ever told me what accepting them meant down the road,” DeVries said. “I was able to finish my university studies while working two jobs on a regular basis, but I probably could have gone into debt a little less sooner. I am going back for my masters next year and I will not be able to work during my program so I have made a lot of sacrifices now and saved some money to help reduce the amount of loans I will owe again contract.
It is simply impossible for her to think about her future without considering her student loans.
“I would love to have a home and start a family, but I feel like the amount of student debt I will have after graduation is a cloud looming above me,” said DeVries said. “Looking at how my family has struggled with money over the course of my life, I wonder if I will also be spending my life constantly living on paychecks and having to make decisions about whether to buy food or pay. utility bills and rent. “
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Last updated: September 21, 2021