Four Ways Student Debt Is Wreaking Havoc on Millennials

College loans are likely cutting into savings and delaying marriage and families for young people.

Are Millennials Financially Screwed?

Navient, the country's largest student debt servicer, put out a report Wednesday that suggests young people are doing just fine with their finances. The study surveyed 3,000 millennials and concluded that they are happily taking out mortgages, starting families, saving money, and managing their budgets. "Young adults are not only financially healthy but also actively focused on saving," the report said. Navient may be overstating things. Here are four reasons you should not be convinced that things are going that well for young people who took out student loans.  

1. Student Debt Seems to Dampen Homebuying

People who finished college were more likely to have a mortgage than people who got only a high school education, the Navient study showed. Students who took out loans for college and didn't graduate, however, are worse off than those who never went at all.

"Completing a degree is a more important factor in financial health than whether an individual borrowed for a degree," said Navient CEO Jack Remondi, in an emailed statement.

Sixteen percent of people who borrowed for college and dropped out had a mortgage, compared with 20 percent of people who didn't have any education past high school. About 30 percent of college students in the U.S. drop out before finishing their degree, according to a 2014 report by the National Student Clearinghouse. Many of those people likely racked up debt without achieving the credentials that could have helped them pay it back. 

That's part of the reason that in 2012, people with student loan debt became less likely to have mortgages than their debt-free peers for the first time in at least a decade, according to the Federal Reserve Bank of New York. Previously, people with student debt were more likely to have a mortgage, which makes a certain kind of sense. More debt implies more education, and we should expect highly educated people to get a jump on buying a home—their advanced degrees would, in theory, boost their lifetime earnings and help them carry that higher debt load. But in the U.S., more and more people  leave school in a financial hole deep enough to affect their likelihood of doing one of the key things that marks their economic ascendancy: buying a home. 

homebuying student debt

2. Young People Are Delaying Starting Families

The Navient report suggests that 20- and 30-somethings are leading normal romantic lives, shacking up, having kids—the works. Again, though, people who never finished college behave differently than those who did. Fifty-two percent of people who got their bachelor's degrees were married, compared with just 39 percent of college dropouts with debt. The data also showed that people who have student debt are less likely to have kids. Thirty-four percent of college grads who still had education debt said they had children, compared with 44 percent of their peers without student debt. 

The study also doesn't get at the question of when people are making these life decisions. Research has shown that student loans are making family-building a longer-term effort than it used to be. A 2015 poll conducted by Bankrate.com found that 56 percent of Americans between the ages of 18 and 29 have put off "lifetime milestones"—including getting hitched and procreating, as well as buying a house or car—because of student loans. 

3. Millennials Are Saving Less Than They Could Be

When Navient asked people if they were saving, the answer was nearly unanimous: 94 percent of young people said were putting money aside. When asked how much savings they'd amassed, however, the results were less rosy. People who never finished college but took out loans saved just $8,500. People who never went to college at all fared better—they said they'd saved about $13,800. And measuring savings at one moment in time may downplay the broader impact of student debt, which seems to cut into wealth slowly but surely over the long haul. A report last month from Limra, an insurance research organization, shows that people who leave college with $30,000 in student debt will end up with $325,000 less in their retirement account than people who graduated debt-free. 

4. College Loans Make It Hard to Be Financially Healthy

Navient rated 63 percent of its survey respondents as having "good" financial health, based on their management of bills and perception of their bank accounts. But the people surveyed did not necessarily agree with that assessment. Thirty-two percent of people who borrowed for college and didn't finish said they felt financially stable, and 55 percent of college graduates agreed. In other words, a sizable chunk of young people aren't confident about their money situation. Indeed, the numbers associated with millennials' budgets are not pretty. One in four borrowers is in default or delinquent on his or her student loans, meaning they're at least 180 days late making payments. 

Federal Reserve Bank of New York

None of this suggests college is a bad idea: People who went to college get paid more than people who didn't and end up with a positive return on their investment. But that partly reflects just how bad things have gotten for less-educated workers and doesn't necessarily signify wild success for people with bachelor's degrees. A recent New York Fed report found that wages for college graduates have been declining for about a decade.