Student debt and health care costs turn saving and credit into a vicious cycle

As the new year begins, we wrap up our study of American Millennials and their challenges in accessing homeownership by examining one final, very real barrier to young people’s ability to save money and establish credit. Millennials have struggled with unprecedented levels of debt resulting from the historically high costs of higher education and health care. Data indicates that this generation, currently aged 25-40, has arguably been hit harder by student debt than any other age cohort, with many millennials financially strapped for tuition loan repayment fees. at a crucial time in their lives. . Here, we’ll examine the economic forces that continue to keep homeownership out of reach as rising medical costs and student debt rival the ever-increasing cost of real estate for millennials’ share of wallet.

The more millennials pay for healthcare, the less they save for a home

The evolution of the economy can be clearly observed in the United States by evaluating the changes in health insurance among millennials. Our 2021 research found that 60% of non-homeowner millennials have their own health insurance, which is surely a sign of the shift from traditional corporate jobs, where health insurance is usually a provided benefit, to the rise of health insurance. gig economy, where workers must make their own arrangements for health insurance. The Great Recession of 2008-2009 also left fewer Americans insured, but more generally, with the enactment of the Affordable Care Act, many insurance decisions fell on people looking for the best and most affordable coverage. for themselves. In the case of self-employed millennials, this has often meant opting for high-deductible plans in which the portion of the medical bill not covered by insurance falls on the shoulders of the individual policyholders, in many cases significantly. unexpected, resulting in a mountain of medical debt overall.

This widespread underinsurance, surprise medical bills, and emergency services have all contributed to millennial medical debt. In a recent HealthCareInsider.com survey, 35% of millennials had received a surprise medical bill, with 51% of those bills exceeding $2,000. In the same survey, 57% of millennials said they have $3,000 or less in savings to pay their bills, while 22% said they have no savings.

These are hardly the circumstances for building enough savings to pay a down payment on a house – our own research supports this finding, with 12% of them considering “paying down medical debt” their top priority. But as crippling as it may be for homeownership, medical debt is overshadowed by the even bigger problem of student debt: the same area of ​​our research showed that 26% of millennials surveyed want to repay their loans. students before any other financial goal. can be achieved. As one respondent put it:

“My generation is at a distinct disadvantage, having struggled with large student loans and coming of age during the Great Recession, which severely affected wage growth and opportunities for wealth accumulation at the start of the recession. around twenty.”

Student loan debt has increased for millennials

The cost of higher education debt has arguably affected America’s millennials more negatively than any other age cohort: As of November 2021, Americans owed $1.75 trillion in student loans. Skyrocketing tuition fees at a pivotal time in their lives, along with other catastrophic economic events, have left many young people so financially crippled that saving for a future or building wealth is irrelevant. In our study, 36% of millennials we spoke to said student debt is a major barrier to saving for a down payment on a home; Another 23% said they were “very strongly affected” by student debt. Besides medical bills, student loan debt – often running into the hundreds of thousands for graduate degrees – is a major obstacle to saving for a down payment on their own home and, in many cases, building up a family. ‘a credit. Here is a commentary from our research that sums it up:

“College debt makes buying a home difficult.”

Here’s a quick look at how it happened and why millennials in particular have been hit so hard by the cost of education. American colleges and universities began aggressively raising the price of their tuition around 1998, just as many millennials were coming of age. The United States Bureau of Labor Statistics provided data that ranks the percentage increase in tuition from 1998 until just before the pandemic. With more than 180% more, the increase in tuition fees even exceeds the increase in the price of housing and medical care services, although these have also risen sharply during these years. Only the cost of emergency room and hospital visits saw price increases larger than tuition and university fees.

Why have colleges increased their tuition so much? A Boomer going to college in the late 1970s or early 1980s expected to pay, outside, $13,000 a year for the best private university – tuition and all fees included. Now that figure is closer to $75,000 a year and growing. What happened?

One of the main reasons cited by analysts for the rampant increases in tuition fees during this period is the ready availability of subsidized student loans. A decade before the graph above began, William J. Bennett, then U.S. Secretary of Education, wrote in an article titled “Our Greedy Colleges”: “…Increases in financial aid these years have allowed colleges and universities to blithely raise their tuition fees, confident that federal loan subsidies would help cushion the increase. at the student’s admission, leaving him little time to decide and no leverage to negotiate.

Millennials have been caught up in this whirlwind of circumstances like no other generation has before or since. Recent research presents evidence that the next generation of students, Gen Z, are more likely to become homeowners than their millennial siblings and friends. After watching them deal with the consequences of student debt, some Gen Zers are playing hardball with higher education institutions for clearer, clearer financial aid, or negotiating with employers to cover their student debt. But a large portion of millennials feel it’s too late and have given up. Indeed, the juxtaposition of what they spend and what they would like to have testifies to their deep disillusionment.

To buy a house, you must be able to save

Saving isn’t easy for millennials, as our research clearly showed: 28% of respondents had less than $100 in savings, while the next-largest cohort, 19%, had no savings ; Another 26% had saved less than $2,000. Savings are on a long wish list for many millennials, and they often seem too overwhelmed to plan for a financial future. Our research showed that nearly half (47%) of millennials who aren’t yet homeowners don’t contribute to a retirement plan either. Of those who are, 41% have a retirement plan through their job. Data showed that those without a retirement plan are unlikely to start pension schemes, suggesting that half of those surveyed are heading into a future with no provision for retirement.

Student loan debt further adds to the economic imbalance. We found a huge disparity between those with a college education (45%) and those without (21%) a retirement plan through their employer. However, while 43 percent of those with tertiary education are not contributing to a scheme, a whopping 65 percent of those without a college education do not contribute. Retirement plans are far down the list of saving priorities for millennials — a distant goal — after paying off student and medical debt…and buying a house.

Although there have been discussions within government, and even measures to alleviate student debt, the most optimistic estimates of forbearance so far combine for a total of $70 billion in cancellation. student debt; that’s still a far cry from the $1.75 trillion in student loan debt still outstanding.

It is difficult to make a single conclusive statement linking all the elements of our study on US millennials and homeownership. During this pandemic period, the latest in a series of obstacles that have prevented many of this generation from saving enough to buy a home, we have also seen the effects of larger economic, demographic and housing trends. and longer that have not been kind to budding young buyers. I am convinced that deep and thoughtful leadership can begin to solve some of these problems: the lack of affordable housing; small towns must become more attractive places to live; technology and education help, not hinder financial inclusion. We need to start finding creative and empowering ways to move capital into investments that benefit these younger generations, while producing a return.