Student Loans Big Drag On Younger Clients’ Financial Ambitions

There’s inflation and then there’s INFLATION. Indeed, the inflationary pressures experienced in the U.S. economy since 2021, though ebbing today, are historic in nature. However, they pale in comparison to the increases in college tuition.

“According to the National Center for Education Statistics, for the 1970-71 academic year, the average in-state tuition and fees for one year at a public non-profit university was $394. By the 2020-21 academic year, that amount jumped to $10,560, an increase of 2,580%,” reports

It’s not a stretch to assume that since the 2020-21 academic year, that scenario has worsened. For as bad as costs are at public universities, things are markedly worse at private colleges. In October, U.S. News & World Report reported that of 611 private universities the publication ranks, 180 had yearly tuition of $50,000 or more, but just 21 cost less than $20,000 annually.

So while one may consider themselves to be a “grumpy” baby boomer or Gen Xer, it’s fair to say well-intended government lending for higher education has been an unmitigated disaster for many borrowers and it’s a big reason why millennials and Gen Zers are worried about their financial futures. That also signals opportunity for financial advisors.

Student Loans Hamper Financial Necessities

The more than $1.7 trillion in student loan debt floating around in the U.S. is not only a massive number, it’s one that’s a detriment to financial necessities, such as emergency and retirement savings, and “luxuries” such as home ownership and starting families.

“Of the U.S. adults surveyed who currently hold or have previously held student loan debt for themselves, 59 percent say that they have delayed financial milestones due to their student debt. Emergency funds and retirement savings have taken the biggest hit, with 27 percent of respondents delaying saving for emergencies and 26 percent of respondents delaying saving for retirement,” notes Bankrate.

When considering the aforementioned point about college costs inflation, it’s not surprising that millennials and Gen Z are contending with the brunt of this burden. After all, colleges and universities have exploited federal lending and steadily raised prices. Thus, younger demographics were hit with the worst (highest) of college costs.

“Age also plays a large factor in financial priorities. Younger borrowers are more likely to stall important financial decisions than their older counterparts; 74 percent of Gen Z borrowers (age 18 to 25) and 68 percent of millennial borrowers (age 26 to 41) have delayed financial decisions, compared to 54 percent of Gen X borrowers (age 42 to 58) and 42 percent of baby boomers (age 58 to 76),” adds Bankrate. “Among younger generations, Gen Z respondents say that they’re most likely to delay buying or leasing a car, while millennials are most likely to put off bolstering their emergency fund and buying a house.”

How Advisors Can Help

Smart advisors realize that there’s a broad swath of clients that are potentially affected by student loans – an issue that’s returning to the financial forefront following the recent restart of payments on government-backed student loans. In a well-intentioned move, those payments were halted due to the coronavirus pandemic, but a case can be made that the forbearance period last too long and that politicians favoring it should have known that many voters simply weren’t saving for a “rainy day” they knew would be coming.

Advisors can help younger clients burdened by student loan debt by helping them through the refinancing process or telling them to inquire about student loan forgiveness/assistance at work.

“Another approach is to look into loan forgiveness through your job. Many employers offer student loan benefits as one way of competing for talent in the labor market. You may consider asking your current employer about such benefits, or research the various forgiveness programs that you may be eligible for based on your profession or place of employment,” concludes Bankrate.

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