13 Jan Factors Affecting The Millennials’ Student Loan Decisions

Do millennials, generally considered to be those born between 1980 and 1999, have different factors which affect how they make decisions about student loans? The ever-increasing amount of student loans, estimated at over $30,000 per 2013 graduate in some states, seems to indicate that this group is comfortable with taking on debt. How much debt they accumulate and whether they will be able to repay it, though, often rely on several factors:

• Your State Might Make a Difference: Although a debt amount of $30,000 is substantial, that is not necessarily the norm for all states. Somewhat surprisingly, the highest amount of student loan debt comes from New Hampshire, at a whopping $32,795. In addition, some 76% of the graduates there have at least some student loan debt. Other states now over the $30,000 mark include Rhode Island, Delaware, Pennsylvania, Connecticut, and Minnesota. Close behind are Maine, Michigan, South Carolina, and Iowa, each with average debt over $29,000. These figures are certainly something to keep in mind as high school students and their parents evaluate financial aid offers for the 2015-16 academic year.

• Your Major Makes a Difference: When it comes to repaying your student loans, your major makes a big difference. A recent analysis from The Hamilton Project showed that, while student loan repayment often becomes easier for most graduates as their earnings increase, students with some majors tend to struggle with student loan debt. Their comprehensive review of eighty majors reveals the share of earnings needed to cover traditional student loan payments. Although college graduates still earn significantly more than high school graduates, there are certain careers which will generate enough income during the first ten years to easily repay most student loan balances. For example, given a similar amount of borrowing, graduates in drama and theater can project paying 24% of their earnings during the first year, while energy and extraction engineering graduates, can estimate paying only 7% of their earnings. While graduates may benefit from income-based repayment programs, this information may have some impact on choices of major and career paths for incoming freshmen.

• You Might Not Have to Repay All of Your Student Loans: Pew Research found that 24% of millennials expect that student loan debt will be forgiven, and they may be right. Students with federal student loans have some options where part of their student loan debt is forgiven based on non-profit or public service or other factors. Income-based repayment plans may also qualify you for forgiveness after 20-25 years, but the amount forgiven may be taxable.

In the end, the best payment strategy is one that is developed before you even begin to take out any student loans. Millennials should not wait until graduation to think about the impact their student loan borrowing will have on their lives after college. As the generation that will have the most economic impact in the next twenty to thirty years, it’s smart to start learning about money management now.