#MillennialMonday : The Debt Dilemma

#MillennialMonday is aimed at giving Millennials advice and insight into how they can better live healthier, happier, more fulfilling and financially sound lives! Whether it’s dealing with short-term or long-term issues, facing job or relationship dilemmas, check here every week for something new aimed at making Millennials, the generation labeled as reshaping the future, even more equipped to do so.

Millennials, or those ages 18-34, are faced with more problems than generations past when they were at this same age point.  Before Millennials even start their lives, post-education, they are loaded with thousands and thousands of dollars in student loan debt.  It is perhaps the issue that is the biggest hindrance for Millennials, while also trickling down and causing issues in other facets of life.

Americans owe approximately $1 trillion in student loan payments. The number is so mind-boggling that it is hard to even wrap your mind around.  For grammar and structure purposes we don’t write out all the zeros on that number but to give you an idea that’s $1,000,000,000,000.  Enough zeros to make your head spin!

If you think that the amount itself is frightening, what if I told you that interest rates on students loans are actually more than the interest rates on cars or mortgages.  Education is held with such esteem in our nation and is coveted as being the best tool to live an even better, stable and more enlightened life.  However, while mortgage and auto loans can be dissolved in bankruptcy cases, debt that is acquired as a result of education can only be dissolved in very limited capacity and is highly unlikely to occur.

Two people to watch on this issue are financial guru Suze Orman and Massachusetts Senator Elizabeth Warren (D). Warren’s bill to decrease student loan interest rates to the 2013-2014 rate was recently blocked by GOP Senators in March of 2015. (This issue will surely come up in more #MillennialMonday topics as politics and the Presidential race gets underway.  I’m sure realizing this Millennials will have very serious questions for any Presidential hopeful.)

Both women have been warriors fighting to educate students on student loan debt as well as try to change the arena in order to give Millennials and those still paying student loans the opportunity to refinance and even lower interest rates.

As compared to the 2013-2014 year, interest rates have gone up for the latest 2015-2016 year. In just two years interest rates on student loans increased by nearly 0.40 percent. When I graduated with my Bachelor’s degree, U.S. News and World Report estimated the average student graduating in the Class of 2013 would take on an average of $28,400 in student loan debt with $71,000 being the high end of the spectrum. Sadly, I think most of my fellow graduates have taken on costs closer to the higher end of the spectrum. This report is highly informative showing that mainly Northeastern states grappling with higher debt than those states in the Southwest. Taking the average reported from U.S. News and World Report a 2015 Undergraduate student will pay $110 more than an Undergraduate student in 2013. While it may not seem like a whole lot of a difference if you magnify that by every student paying back student loans the number would be sickening.  Not to mention with Millennials just starting off their real-world lives I’m sure that $110 could be better spent toward a car payment, or even rent or mortgage payments.

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The burden is that we are placing a huge financial weight on the backs of our youngest Americans, and giving them more obstacles before they even really start living their lives.  To me, it is unfair, and it is completely absurd.  How can we actually make this country better if we are hindering the up-and-coming generation as soon as they step out of the gate? Not to mention the great disparity between other sectors of money-borrowers.

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But what can Millennials do if interest rates are only to be decided by those in government? Is there a better way to deal with this burden? Is there a way to make the best of the situation?

Tips for Millennials dealing with absurd student loan debt:

1.) Make student loan debt you’re only debt:

I, for the life of me, do not understand how any Millennial can have credit card debt. I have worked with Millennials who constantly say, “I’m making the minimum payment on my credit card,” or “Hopefully soon I can pay off my credit card.” I have, since I got my first credit card in 2009, paid off my bill, in full, every single month.  When entering college I was always told you should never get a credit card, or if you need to it should only be used in absolute emergencies.  I’ve known people who foolishly make purchases with the swipe of a card and by the time they are done paying it off, the interest rate has made that purchase nearly double the original price.  I ask: What is the point of buying something if you are only going to let the price increase in interest? To me it is senseless and Millennials can’t afford – no pun intended – to rake up more debt than they already have.

  • What to do:
    • Limit yourself to one credit card, or sacrifice all credit cards for a debit/credit bank account in order to better manage and be aware of your spending. I’m a fan of a bank-linked debit/credit card where money is needed in the account before a purchase can be made.
    • Let cash be your friend – it’ll save you anxiety when getting a credit card bill and seeing the purchases add up over a month’s time.  You can buy something on the spot, and not have it haunt you weeks later when the bill comes in the mail.
    • Make student loan debt your priority by paying off in full every month. When you see how much a monthly payment can be, you will understand that you should not swipe that card for the latest trendy purchase.

2.) Stick to a budget and prioritize it:

Because of this mountain of debt, more Millennials are moving back in with their parents after college.  However, if you are not a fan of having to make that move and instead wanting to be independent, you need to fully understand every single expenditure you will possibly make. This means rent, other debt payments, utilities and even the luxuries like cable, and eating out.  I did this when I was applying for jobs and needing to understand what I would need to make to cover my expenses.  It was almost scary to see how much money I spend and what I spend money on.  But Millennials need to be aware of every type of expenditure that is sure to come up so they can start to live financially responsible.

  • What to do:
    • Prioritize our budget and understand what costs are necessities and what other costs can be cut altogether from your expenditure list. Maybe you don’t need cable, but a Netflix subscription would be a way to scratch the TV itch.
    • If you do have to move in with mom and dad and don’t have to pay for things such as utilities, don’t think that you should put that money elsewhere – unless absolutely necessary. Put that money away for those needs, it could be a nice cushion to start off with when you do have those bills.  In another scenario, that money can even be used for bigger expenditures like student loans, if you find yourself in a pickle and are low on your goals for a month, or even expenditures you may have missed or not calculated for.

3.) Use the 6 month grace period wisely:

The silver lining in paying off student loans is that you have a six-month grace period before you have to start paying off your debt.  That means you have plenty of time to start saving money and get yourself off on the right foot.

  • What to do:
    • Calculate your monthly student loan payments with the timeline you have to work with. It’ll give you a reality check of what you need to pay back and could help you when you can be fooled into making a stupid purchase. But most importantly it will show you what you need to put away out of that weekly (or biweekly) paycheck in order to make ends meet.
    • Start putting money aside immediately. You have six whole months, and granted you may not have a job immediately once you graduate, but start pulling money from your part-time job in order to make payments.  Not to say you have to start paying immediately, but you give yourself a money cushion to work with.  You have a jump start (six payments worth at most!) on your loan debt.  You can either pay it off all at once to shorten your timeline, or just have a jump start that will have you ready to go once those bills start coming in the mail.

On this #MillennialMonday, I hope Millennials everywhere are feeling a bit more confident in how they can handle their student loan debt!

**I am not a financial expert and money advice may be better sought out through your local bank or credit union.  However, I have known to be good with money – a credit score of 762 – and find that my practical advice has worked for me and I think the same can help you!

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5 thoughts on “#MillennialMonday : The Debt Dilemma

  1. This piece is timely for me. A long time ago, I put most of my UG on loans. I worked hard to pay off these loans. When it came time for my Master’s, I was able to pay the bills as I went. Now, I am going for my Ph.D. I put the first half of the tuition on loans, which was one of the biggest mistakes of my life. I assumed that these loans would work similar to the way they did when I was in UG. Wrong! New laws were passed and interest starts to accrue the minute tuition is placed on loans, not after the deferment date. Over the past few years, I have worked to pay off these loans- paying over the required amount each month, but the balance has remained roughly the same as about half of what I pay each month goes towards the interest. This most recent loan experience has left me bitter and angry and it has affected many opportunities available to my husband and I. We both have good jobs that pay well, but we both have school loans. My first piece of advice to incoming students is to avoid loans altogether if you can. Get a job, and use the full semester to pay off the bills little by little. My second piece of advice is to find a good financial advisor who can help you sort out how to pay off any loans that you currently have sooner rather than later because the most interest that accrues, the more you have to pay back later on.

    • Leah,

      Amazing advice – I have to say if it wasn’t for my scholarship for UG I wouldn’t have made it to Canisius but what is even more insightful is my GA with my Master’s. It completely covered my tuition and gave me two years to work toward paying my loans for UG. It is an opportunity that I think most students don’t realize they can have afforded to them with higher education.

      Thanks for the insight for the PhD because, as someone thinking of pursuing that in a few years it goes to show that student loan debt isnt something to just be aware of once you graduate as most feel the weight decades later.

      My hope is that millennials get involved more in conversations especially with the upcoming election and see what can be done in the future.

  2. Your financial advice is solid. Anyone I’ve ever talked to from family and friends, to bankers, to professors, all echo your thoughts on reducing the amount of debt you carry.

    However, I do take some issue with the comparison being made between student loans and other types of loans (specifically auto and home loans).

    What is a loan, really? It’s an advance on future earnings. It’s a bank or other entity saying, “I know you will earn this much in the future to be able to pay me back, so here’s a little bit of it right now.” On the other end, the person using the loan is deciding to put off some or all of the price tag until a later date, but doesn’t want to wait until that later date to get what he/she is buying.

    When banks issue loans, they check multiple things. The main one we hear about all the time is your credit score. What is a credit score? A record of your credit history including how much debt you currently have, how much of your credit card limits you’ve used up, how long you’ve held active credit accounts (cards or loans), how often you pay on time, and how quickly you pay back loans you’ve been issued. Other factors that can appear on a credit score, and that banks will certainly check, are your checking and savings account information – how much money do you have on hand, and how much do you generally earn per month. They look at all these things to assess their risk.

    Gorc, you claim your credit score is a 762. That means you are a low-risk investment for a bank to issue a loan. My own score is hovering in the mid 600s, meaning I’m a higher risk than you are, but still not a risky investment because I always pay my bills on time.

    Most people going after home and auto loans have credit scores not much lower than mine. They won’t get the best possible rate, but they won’t get screwed over, either. These people have solid credit histories showing consistent on-time payments of at least the minimum (and usually more). They’ve probably had at least one credit account closed because they paid it off completely. They have slightly higher limits on credit cards, and don’t use much of that limit.

    But what about the average college freshman? Most of these students have no credit history at all. They are an unknown risk. They don’t have credit cards because they aren’t 18 yet. And for that same reason they don’t have home or auto loans. Few currently hold jobs that a bank would say can pay off the amount of money the students are asking to borrow. They’re borrowing not against CURRENT earnings, but against FUTURE earnings. So we have a person with no credit history asking to borrow more money than they can currently afford thinking they might pay it back in the future. That’s a completely different scenario than your average home/auto loan.

    I actually do recommend students get either a credit card or a small loan as freshmen. This isn’t something to use unwisely. It’s something to establish a credit history. Get a Target RedCard that can only be used at Target, and only buy groceries with it and pay it off every month. Or if you get a full credit card only use it for gas/groceries that you know you’re going to buy anyways and pay it off at the end of the month. This keeps your accumulated debt low, while also establishing a great payment history and overall credit history. I don’t recommend a credit limit over $1000, and the max you should ever accept while in school is $2500. I use those numbers because I know students want to go home for the holidays. Travel is expensive. My last trip home cost me about $700 to fly to California and Kentucky, and then drive back to Canisius with my stepmom.

    If you have a student loan, then forget everything I just said. Do NOT get a credit card on top of your loan. Instead, put a small portion of money away each month (at least $25) so you’re prepared when the grace period ends with at least a significant first payment. Maybe you even use that money to make payments during the grace period (students, by the way, 25/mo x 12 mos = $300/yr, 300 x 4 yrs = $1200).

    • Bryan, These are awesome tips. When I mentioned home and auto loans, it is more so in comparison to interest rates and really the unfairness that has hindered students from going into other big purchases with financial stability. But you have many valid points. Credit cards are tricky. I opened one when I started college to build my credit score and to show I’m not a liability. But I’ve seen so many people pay minimum payments on credit cards and get hammered with interest rates they could’ve avoided. It’s funny because my first credit card gave me a limit of $500 and I haven’t extended that because it has kept me within a means of living that I don’t go out of.

      Thank you so much for reading and sharing these tips, I know they are incredibly useful as we all navigate the field of student loans and the other financial endeavors we make our way through!

      Best of luck and keep reading, there’s going to be more on this topic coming soon!!

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