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Generation X’s Student Loan Struggle
August 7, 2017
Generation X is known as the “latchkey kids, slackers and the MTV generation.” Originally thought of as a generation of slackers, Generation X are already the greatest entrepreneurial generation in U.S. history; their high-tech savvy and marketplace resilience have helped America prosper in the era of globalization. Many Generation Xers are hard-working with more two-parent family incomes.
However, Generation X has it’s problems: many are way in debt, falling behind in home ownership, under-insured and under-prepared for a retirement they will have to fund themselves. This generation of latchkey kids were financially devastated twice – once when the tech bubble burst and again during the Great Recession.
To make matters worse, more than any other generation, they are still paying student loan debt for their own college and graduate education while also paying for their children’s student loans and college expenses which is impacting their retirement.
Approximately 30% of Generation Xers are carrying student loan debt over $30,000. In addition, 20% of them are also currently paying for at least one child in college and 27% are paying for more than one child’s college tuition. The reason we are seeing this is that many Generation Xers took out student loans that took 20 years or more to pay due to expensive graduate educations and professional degrees. Many of them are still paying off their own loans when it has come time for their children to go to college. This is the first time that we are seeing one generation with two sets of student loans, their own and their children’s loans.
Today, the federal government and the schools consider it primarily the family's responsibility to pay for school. They provide financial assistance only when the family is unable to pay, not when the family does not want to pay. The federal government believe that parents have a greater responsibility toward their children’s college education than the government or the schools.
The US Department of Education has published guidance to financial aid administrators indicating that neither parent refusal to contribute to the student's education nor parent unwillingness to provide information on the student aid application or for verification is sufficient grounds for a dependency status override. This is true even if the parents do not claim the student as a dependent for income tax purposes or the student demonstrates total self-sufficiency.
This puts Generation Xers in a very difficult situation. The Generation Xers were the first generation to be impacted by the bankruptcy reform bill in 2005 which prevented both federal and private student loans to be discharged during bankruptcy (prior to the passage of this bill, only federal student loans were unable to be discharged). Many of them are still repaying their own student loans and now with their staggering price of college their children do not qualify for enough credit to take out their own student loans forcing Generation Xers to take out Parent Plus loans to finance their children’s college education whether they can afford it or not.
The Parent Plus loans cannot be transferred to their children and can take over 10 years to pay off with high payments. They can cost an average of $900 per month if you borrow $18,000 per year and that is for only one child. In addition, some of the generation Xers are still paying between $500 and $1,200 per month for their own student loans.
Statistics show that 35% of education debt caused by longer repayment schedules, returning to school for advanced degrees and additional borrowing for children’s education for Americans over the age of 40.
What the student loan struggle created the inability for 58% of Americans to save emergency money or invest in a retirement plan, and in some cases the inability to purchase a home or new car. With student loan debt payments this high, many Generation Xers are spending more than they earn. However, they have allowances that extend the length of repayment for their Federal student loan which can provide time, but can be expensive due to the accruing interest .
Generation Xers have the least amount of confidence that they will retire comfortably.
Due to the inability to put money away early to pay for their children’s college education because they were still trying to pay down their own college debt. Parents pay from their current income and are unable to pay down their own debt, build an emergency savings or invest in a retirement plan.
Parents often feel obligated to fund their children’s education, but there some steps to take to lessen the financial burden. You can start by discussing with your children about sharing the cost of college expenses. The student can take out their maximum contribution, search for scholarships, get a job to assist paying while in school and then the parent take out less in a Parent Plus loan.
You can pay for only the college tuition and set the expectation that your child get a job to pay their own room and board. You can also have your child attend a two year community college before they transfer to the college of their choice. Or they can opt to attend a local, state college and live at home to reduce their college expenses.
Even with all of these alternatives, 40% of Americans paying college expenses for their children said they would work longer and harder to help pay for their child’s college education. This could impact the student loan industry with Americans aged 60 and older owing billions of dollars in student loans.
In fact, for the first time in history you may see a significant amount of social security checks garnished for repayment of delinquent student loans.
What can be done?
Don’t give up on your retirement!
Whatever you do, START NOW! Even if you have some form of educational debt, you need to put something away for your retirement.
Make sure you contribute at least your employer’s match in your 401(k) which will double your money. You should also try to invest the maximum towards a Traditional or Roth IRA. Even if you have to make the minimum payments towards your student loan debt in order to invest in your retirement.
Get a part-time job to help with the cost of investing in your retirement while paying off your student loan debt.
And whatever you do… DON’T RACK UP MORE DEBT!!!!
Avoid using credit cards, taking money from your retirement accounts to pay down debt and don’t purchase big ticket items if you can’t afford them. Create and stick to a budget that shows you where your money is going so that you have control over it. This may be difficult, but will provide you with a better financial future.