Rising student debt has kept younger generations from making large purchases like homes and forced them to push off significant life events like marriage, but the economy could be showing signs that things are turning around.
Still, while the rising economy has made it a little easier to start paying back those loans, they continue to be a struggle for most millennials, a Wells Fargo report found.
“Given wide variation in the cost of college and the future incomes of students, many borrowers are still struggling to back student loans,” the report said. “Therefore, while debt burdens for the typical Millennial are beginning to look a little less troublesome, student loans continue to challenge this generation’s ability to spend, save and accumulate assets.”
By many metrics, the economy has been growing and benefiting everyone. Unemployment is down and underemployment has been falling as well.
Some of these indicators have started to benefit millennials and other younger borrowers, but they also tend to benefit these segments the least, Wells Fargo found.
“Younger workers have actually seen the slowest earnings growth of all other cohorts,” said Sarah House, a senior economist at Wells Fargo. But faster wage growth last year means we are “beginning to see younger workers shake off the impact of graduating into a recession.”
House co-wrote the Wells Fargo report.
Still, businesses have been concerned about how more student debt and lower wages affect these borrowers’ abilities to save and spend. House said it was a top concern of businesses.
“Student debt has been pretty much the defining characteristic of the millennial generation,” she said. “Businesses are often worried about what student debt is doing to consumers ability to spend and save.”
The debt load for students in Maryland has been growing.
Last year, a LendEDU report found that in Maryland universities’ graduation class of 2016, the average graduate with student loans left school with a debt of $27,241. That ranked 29th in the country.
That debt had grown slightly, 0.34 percent, from the year before.
A slowing in college tuition costs has been one of the positive economic factors House pointed out Tuesday. That slowdown, combined with slowly rising wages, has been an indicator that it could soon be easier for students to get out from under the burden of their debt.
“It’s been the slowest increase in more than a decade,” House said. “The slower college costs are helping the dynamics, for at least your more recent borrowers.”
For the first time in 40 years, earnings are outpacing college costs.
One tool that has helped borrowers but could have longer-term costs has been the shift toward using income-based repayment plans. Under these plans, borrowers pay a percentage of their income towards their loans.
Their use has grown in popularity, from about 12 percent of all borrowers in 2014 to almost a third in 2018.
“It’s made it a little bit easier for households to finance and hold this student debt,” House said.
But income-based payment plans come with a downside.
Student loans typically carry a 10-year term. Under income-based repayment, these loans can stretch up to 25 years before students can seek forgiveness on their federal loans. That means they are carrying the debt longer.