The Surprising Impact of Student Debt on the Millennial Mindset
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Depending on who you ask, you may hear the student loan debt situation in the United States be referred to as a “crisis.”
That description is certainly not without merit.
In the U.S., the national student loan debt has been steadily climbing to its current record high at $1.45 trillion. There are 45 million student loan borrowers – 60 percent of all college grads – each one owing an average of $27,975 in educational debt.
As the country’s educational debt figure continues to escalate, so too does the national conversation. But according to findings from a new survey, student borrowers have limited knowledge and inadequate preparedness for the repayment burden that they face post-graduation. This conundrum is exacerbated by the fact that the majority of debtors surveyed, no matter how ill-prepared, report feeling daily stress and embarrassment over their loans.
As a result, millennials’ workplace priorities are beginning to shift. Student loan refinancing employee benefits are becoming heavily valued by many young members of the workforce. Millennials, long thought to place a premium on perks like unlimited vacation days, are placing functionality over fun and by demanding refinancing benefits.
LendEDU sought to discover how young Americans are changing their preferences and lifestyles due to student loan debt.
Polling 1,000 college graduates between the classes of 2012 and 2017 that currently have student loan debt, we uncovered some interesting trends.
Observations & Analysis
Borrowers are Stressed and Embarrassed Over Their Student Debt…
The majority of poll participants reported both stress and embarrassment because of their educational debt.
When respondents were asked if they feel stress related to their student loan debt on a daily basis, 74.3 percent of them stated they did. Further, 55.6 percent of respondents admitted that they felt self-conscious and/or embarrassed by their student loan balance.
The stresses of college do not end for most student loan borrowers once they graduate and enter the workforce, but rather linger in the form of a sizeable monthly payment.
Many respondents did not understand the financial burden that came with repaying their educational debt upon graduation. This could be a major factor when it comes to the high levels of student debt-induced stress and embarrassment.
Nearly half of borrowers (47.5 percent) stated they “somewhat understood” the financial burden of repaying their student loans upon graduation, while 11.8 percent said they had no understanding; this means nearly 60 percent of respondents did not fully understand the debt repayment burden.
>> Read More: How to pay off student loans fast
Preparing student debtors while they are in college for the repayment journey that lies ahead could make for a much smoother transition post-graduation. Perhaps with more of an understanding of the educational debt repayment burden, borrowers in the working world can create a plan that mitigates stress. This could lead to more confidence, which in turn could reduce embarrassment.
…And Employers Should Take Notice
Recognizing the daily burden of debt shouldered by so many young Americans, it would not only serve employers well in alleviating employee stress by offering a student loan benefit, but it would also help them retain and attract employees, according to the survey data.
As the student loan debt total in the U.S. continues to grow, more employers are beginning to offer student loan benefits. Usually this benefit amounts to a few hundred dollars a month that goes directly toward the employee’s educational debt.
A combined 71.4 percent of student loan borrowers indicated a student loan refinance benefit offered by an employer would either be “very important” or “somewhat important.” Even more striking was that a combined 5.3 percent said a student loan refinance benefit would either be “somewhat unimportant” or “very unimportant.”
It is evident that most young Americans in the workforce with student loan debt are making an employee student loan benefit a top priority in their job hunt, but such a benefit can also make a difference in deciding whether to stay in employee retention.
More than half of respondents, 53.1 percent, indicated that they would stay in a job they disliked due to their student loan obligation. In other words, for most borrowers, out of all the reasons to dislike a job, none would outweigh the burden to repay student loan debt.
Further, 58.4 percent of respondents indicated that they would prefer a student loan refinance benefit from their employer instead of additional vacation days.
This represents a deviation from the typical millennial stereotype, as the majority of millennial student borrowers value the functionality of a student loan benefit over the fun that comes with more time off.
For all of the stress and limitations brought on by the worsening student loan debt total in the U.S., there appears to be a golden opportunity for employers to attract the top young talent coming out of college. Student debtors clearly value an employee student loan benefit probably now more than ever before. Employers that make it a point to help their employees with their student loans should reap big rewards in the coming years.
Student Loan Payments are the Second Largest Expense for Young Americans
Through this survey, we were able to paint a picture of what a monthly budget looks like for the average young American and what is left of that budget, if anything, after major expenses are paid for.
Trailing only payments toward a rent or mortgage, monthly student loan payments were the second-greatest expense for young consumers at $409.97.
Of course, not every respondent from our poll was making all of the aforementioned payments, but they all were making student loan payments, and 81.1 percent of them were making payments on a rented property or mortgage.
Those two expenses alone account for an average of $1,224.49 per month, leaving $1,430.25 of the average young consumer’s monthly take-home pay. For those respondents with other monthly expenses in addition to their property and student loan payments, each month is a budgetary squeeze especially when other necessities like groceries and utilities are factored in.
As one might expect, these expenses are limiting young Americans with student loan debt from both enjoying life’s pleasures and hitting important financial milestones.
Refinancing Student Debt Can Help But Not Many Are Doing It
Based on the results of the survey, student loan borrowers that refinance their educational debt are able to free up some cash.
The only problem? Not many young consumers with student debt are refinancing.
Since graduating, only 29.6 percent of respondents have refinanced student loans.
Of those respondents that refinanced their student loan debt, we asked what they put the money saved through refinancing toward.
The impacts of student loan refinancing are quite tangible. With more freed up money, student borrowers are able to invest in their retirement (12.84 percent), build a down payment on a house (7.09 percent) or an emergency fund (18.92 percent), pay back other debt (11.15 percent), or even treat themselves to a vacation (4.05 percent).
But after refinancing their student loans, the plurality (45.95 percent) of these respondents were putting that saved money right back into their educational debt. This is indicative of the student loan debt burden and where it ranks on the average borrower’s list of priorities.
Full Survey Results
(1) On a monthly basis, what is your take-home pay after taxes are taken out?
a. We found that the average take-home pay after taxes for our respondents was $2,654.74.
(2) On a monthly basis, how much do you pay per month toward your student loan debt?
a. We found that the average monthly student loan payment for our respondents was $409.97
(3) In your monthly budget, do you currently make a payment toward a car?
a. 65.5% of respondents answered “Yes”
b. 34.5% of respondents answered “No”
(4) (Asked only to those who answered “A” to Q3) On a monthly basis, how much do you pay per month toward your car payment?
a. We found that the average monthly car payment for our respondents was $364.41
(5) In your monthly budget, do you currently make a payment toward rent or mortgage for housing?
a. 81.1% of respondents answered “Yes”
b. 18.9% of respondents answered “No”
(6) (Asked only to those who answered “A” to Q5) On a monthly basis, how much do you pay per month toward your rent or mortgage payment?
a. We found that the average monthly rent or mortgage payment for our respondents was $814.52
(7) In your monthly budget, do you currently set aside money for retirement in a 401(k)?
a. 42.8% of respondents answered “Yes”
b. 57.2% of respondents answered “No”
(8) (Asked only to those who answered “A” to Q7) On a monthly basis, how much do you set aside per month toward your retirement via 401(k) or IRA?
a. We found that the average monthly 401(k) or IRA contribution for our respondents was $288.78.
(9) Which of these have you had to cut back on in order to make monthly student loan payments? (Select all that apply)
a. 48.2% of respondents selected “TV cable and/or content streaming services (Netflix, Hulu, etc.)
b. 72.4% of respondents selected “Going out to eat”
c. 46.9% of respondents selected “Social life with friends and family”
d. 54.3% of respondents answered “Entertainment (movies, sporting events, concerts, etc.)”
e. 26.2% of respondents answered “Health care related expenses ( i.e. dental & doctor visits)”
f. 36% of respondents answered “Exercise payments (i.e. gym membership)”
g. 55.5% of respondents answered “Vacations”h. 39% of respondents answered “Upgrading my wardrobe and/or accessories”
(10) Which of the following life milestones have you had to delay in order to make monthly student loan payments? (Select all that apply)
a. 29.8% of respondents answered “Getting married”
b. 31.3% of respondents answered “Starting a family”
c. 26.4% of respondents answered “Buying a pet (dog, cat, etc.)”
d. 44.4% of respondents answered “Saving for retirement”
e. 49.8% of respondents answered “Buying a house”
f. 27.6% of respondents answered “Going back to school (Masters, Law, Doctoral, etc.)”
g. 19.3% of respondents answered “Financial independence from parents”
(11) Have you refinanced your student loans since graduating?
a. 29.6% of respondents answered “Yes”
b. 70.4% of respondents answered “No”
(12) (Asked only to those who answered “A” to Q11) What have you put the money saved from refinancing toward?
a. 45.95% of respondents answered “Used savings to pay back student loan debt faster”
b. 18.92% of respondents answered “Used savings to build an emergency fund or savings fund”
c. 12.84% of respondents answered “Used savings to invest more money into a retirement account (ex. 401(k) or IRA)”
d. 7.09% of respondents answered “Used savings to build down payment on a house”
e. 11.15% of respondents answered “Used savings to pay other debt (i.e. credit card)
f. 4.05% of respondents answered “Used savings to purchase life experiences such as vacation and/or purchased goods, etc.”
(13) Upon graduation, do you believe you were adequately prepared with the knowledge you needed to repay your student loans? (1 being the least prepared, 10 being the most)
a. The most populated answer was “3”
b. 70.9% of respondents voted between 0-6 (detractors), 17.8% voted between 7-8 (passives), and 11.3% voted between 9-10 (promoters)
(14) On a daily basis, do you feel stress related to your student loan debt?
a. 74.3% of respondents answered “Yes”
b. 25.7% of respondents answered “No”
(15) Are you self-conscious or embarrassed by your student loan balance?
a. 55.6% of respondents answered “Yes”
b. 44.4% of respondents answered “No”
(16) Upon graduation, did you fully understand the financial burden of your student loan repayment?
a. 40.7% of respondents answered “Yes. I fully understood the financial burden of my student loan repayment.”
b. 47.5% of respondents answered “Somewhat understood the financial burden of my student loan repayment, but needed to know more.”
c. 11.8% of respondents answered “I had no understanding of the financial burden of my student loan repayment.”
(17) How confident are you in your understanding of the student loan refinancing process?
a. 20.1% of respondents answered “Very confident”
b. 37.5% of respondents answered “Somewhat confident”
c. 19.5% of respondents answered “Indifferent”
d. 14.9% of respondents answered “Somewhat indifferent”
e. 8% of respondents answered “Very unconfident”
(18) Are you aware that some employers are now offering a student loan refinance benefit?
a. 45.5% of respondents answered “Yes, I was aware’
b. 54.5% of respondents answered “No, I was not aware”
(19) When considering a job, how important is it to you that your employer offers a student loan refinance benefit?
a. 31.7% of respondents answered “Very important”
b. 39.7% of respondents answered “Somewhat important”
c. 23.3% of respondents answered “Indifferent”
d. 3.5% of respondents answered “Somewhat unimportant”e. 1.8% of respondents answered “Very unimportant”
(20) When deterring whether to remain in a job, how important is it to you that your employer offers a student loan refinance benefit?
a. 36.1% of respondents answered “Very important”
b. 22.3% of respondents answered “Somewhat important”
c. 31.6% of respondents answered “Indifferent”
d. 7.1% of respondents answered “Somewhat unimportant”’
e. 2.9% of respondents answered “Very unimportant”
(21) Would you or have you stayed in a job that you didn’t like because of your student loan obligation?
a. 53.1% of respondents answered “Yes”
b. 33% of respondents answered “No”
c. 13.9% of respondents answered “Unsure”
(22) Would you prefer student loan refinancing benefits from your employer over additional vacation days?
a. 58.4% of respondents answered “Yes”
b. 23.1% of respondents answered “No”
c. 18.5% of respondents answered “Unsure”
All data featured in this report derives from a report conducted online by polling company Pollfish. In total, we polled 1,000 student loan borrowers that currently have student loan debt and graduated from a four-year college in either 2012, 2013, 2014, 2015, 2016, or 2017. Respondents were filtered via screener question and had to fit the aforementioned parameters. This poll ran over a two-day span, starting on Feb. 8, 2018, and ending on Feb. 9, 2018. Respondents were asked to answer each question truthfully and to the best of their ability.
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Author: Mike Brown