Coming of age in the wake of the Great Recession has turned out to be a raw deal for the Millennial generation. A close look at the balance sheet of young Americans shows declining incomes, lower levels of wealth, and rising amounts of debt—a fool-proof recipe for downward mobility.
Historically, one of the common pathways to upward mobility in America has been through the woods of higher education. For many that still may be true, but clearly the dynamics have changed. Today, pursuing post-secondary education is a more expensive proposition than it used to be. To fill the gap between savings and tuition, students take out loans to finance their educations. Unfortunately, this is leaving a significant amount of debt on the balance sheet, regardless of whether someone completes their degree or not. Although student loans are readily available, they don’t always help aspiring students get ahead. In part because of these failings of financial aid, smart kids from lower-income families succeed at lower rates in college than mediocre students from wealthier families, reflecting a weakness in our national meritocracy.
Still, in many respects, the Millennial generation is the most educated (measured by degrees and credentials) the country has ever produced. According to the National Center for Education Statistics, the share of 25- to 29-year-olds with a bachelor degree has grown by almost 50 percent since the early 1980s. A higher proportion of 18- to 24-year-olds are going to college now than at any time in the past. But completing a degree is no longer a guarantee of securing a high-quality (and well-paying) job. The drive for flexibility among employers has led to a rise in freelance and contract work; employment tenures continue to shrink. Many college graduates are working in jobs that don’t require a degree. The economic mobility ladder rests on unsteady ground.
In their new book, The Real College Debt Crisis, Elliott and Lewis set out to explore how and why the traditional drivers of upward mobility have broken down and what to do about it. They are interested in advancing a conversation about the inefficiencies and inequities in the current student loan system, as well as how such a system is failing to achieve a set of vital societal goals. Elevating a broad range of objectives associated with economic mobility, financial stability, and social justice, they find the current arrangements poorly suited to support these ends.
Part of their exploration necessarily focuses on the rising specter of debt and its impacts on young adults. Given what we know about the life cycle, we might expect initially to see low levels of wealth and some student debt when adults enter the workforce. In time, rising incomes are associated with home purchases and paying down student debt, which are two key ingredients for asset accumulation. But excessive debt can delay this process and have severe consequences for a family’s wealth building potential. Even for young adults with relatively smaller loan balances, diverting their incomes during this critical coming-of-age period may lead to poorer financial outcomes later in life. These scenarios appear to be unfolding in real time for millions of Millennials.
Less wealth and savings have made Millennials ill-prepared to make the type of investments that build up the asset side of their balance sheets, which is likely to exacerbate inequalities. Increased attention in recent years to large and pervasive inequality in America has shined a brighter on the fortunes of the top 1%. In addition to getting richer, those at the top are getting older. This is because the current cohort of young has accumulated less wealth than their parents did at similar ages.
Looking back over the last quarter century, older Americans have (in real terms) nearly doubled their wealth, and middle-age Americans have increased their wealth by nearly two-thirds, but the wealth of younger Americans has actually declined. While middle-age and older Americans have recovered much of the wealth lost in the recession, younger Americans have recovered only about one-third. Where Millennials have experienced growth is on the debt side of their balance sheets, particularly in the form of rising student debt. Without large-scale changes in the economy and the student loan system, Millennials will be playing catchup for years to come to achieve the levels of net worth accumulated by their parents.
It is time to look for some alternative policy mechanisms and a new paradigm for getting people to and through college in responsible ways. Elliott and Lewis bring a couple of potentially powerful ideas to the table. One is to help students prepare for college by saving for it ahead of time. This can help orient a student to think about what it takes to get to and succeed at college as well as minimize the debt burden afterwards. Specifically, they describe how Children’s Savings Accounts (CSAs) can serve as a powerful intervention that promotes positive educational and financial outcomes. If students and parents are able to make contributions to their designated savings accounts as they move through primary and secondary school, they can create a pre-college pathway that avoids the current “just-in-time, debt-dependent approach” to financial aid that is part of the problem.
Turning around the growing generational inequality is the new Millennial challenge and it will require a broad set of policies. Among other things, the costs of accessing education have to be brought down so liabilities don’t overwhelm the family balance sheet. CSAs might be one way to do it.