Last week I was invited on to NBC 11 Alive news in Atlanta to discuss this recent article (http://cnb.cx/1ubs042) that shared a study where it was discovered that 24% of all Millennials expect that their student loans will ultimately be forgiven. That's a downright scary statistic. One in four of the kids who are borrowing money to pay for their current college education expect that they won't have to repay the very debt that they borrow. How can this be? Isn't this generation the most educated of all time? What is going on in America? Here is my smart money moves take on the details and where this is headed.
First things first, I'm not really sure at all why we are surprised by this sentiment. Back in the real estate crash of 2007 & 2008, how many people simply handed over the keys to their properties, walked away from their homes, and came out unscathed by never fulfilling their obligations to pay their mortgages? In fact, websites even got created (and still exist) such as www.youwalkway.com where they discuss concepts such as 'strategic default'. Fancy terms for limiting the damage from never paying your obligations. How many people has this generation seen mount up tens of thousands of dollars of credit card debt only to file bankruptcy and years later be up and rolling again getting credit lines offered to them even though they didn't pay it back the first time? Most of our learning we do by watching the actions of others, so why wouldn't student debt be next in line after credit card debt and mortgage debt?
Second, if you having been paying attention, the Government just changed the rules to actually allow students to forgive their student debt. How does it work? For those students that are new borrowers after July 1st, 2014, the Income Based Repayment Plan (IBR) is now generally going to be 10% or less of your discretionary household income. This was done in an effort to allow students to get their lives up and going while repaying back their debt. The repayment period is 20 years and if for some reason you consistently make payments and the debt is not paid off after 20 years the debt will be forgiven. FORGIVEN! By the way, the prior IBR was 25 years and now it is down to 20. Who guesses what the next steps will be to get this to 15 years, then 10 years, etc.?
Millennials are now starting later on the American Dream. They are planning on buying their first home later in life (if they buy one at all), get married later in life, and have children later in life. Since this group is as equally as large from a population perspective as the baby boomer generation, I am pretty confident that we won't let student debt stand in the way of some 77 million people achieving the American Dream. Expect to see continued to pressure on the Government to figure out other creative ways to just let this debt drift into the 18 trillion dollar black hole that keeps on growing. Why not? It's just a rounding error at this point.
We don't know where student loan forgiveness will end up as of yet, but it should not be shocking that this generation expects the debt will ultimately be forgiven. I'm a big believer that you fulfill your obligations to the commitments you make in life. You want to play then you must be willing to pay. However, one in four people graduating today may find it easier to say, "Here are the keys to my diploma. Go ahead and take it because I'm going to get paid anyway." You are right, you will get paid. And the rest of us will be paying on that debt forever.
Written by: Ted Jenkin
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