Sadly, More College Debt and Generation Y Go Hand-in-Hand

According to this paper by Jason Houle at Dartmouth College, young adults in Generation Y are twice as likely to have a negative net worth than Baby Boomers when they were the same age.  Houle’s study, based on data from the Labor Department, compares Early Boomers who were 24-28 years old in the mid 1970s, Late Boomers who were that age in the late 1980s, and Generation Y who are in that age group today.  Around 16% of both sets of Boomers said they had more liabilities than assets.  That number jumps to 35% for the Gen Y group.

Is this a good thing for Gen Y? Not really.  Starting out in the workforce after college with a negative net worth puts you in a hole.  You have to spend extra time and money just to dig out of that hole before you can start saving for retirement or a house.

The study also found that young people are incurring debt in different areas than their older counter parts.  Gen Y is carrying more school debt, but less home and auto debt than their Baby Boomer cohorts.  This is also a bad thing for Gen Y.  For one, school debt never goes away.  Unlike other types of debt, you can’t declare bankruptcy and wipe it away.  Less auto debt is probably a good thing.  Less home debt might be a good thing, but I think it’s because Gen Y’ers are putting off home buying until they can dig themselves a little further out of the school loan hole.

Much of the blame for increased school debt tends to go towards the skyrocketing price of college.  But, I think most high school seniors (and their parents) aren’t being smart shoppers when it comes to finding a college education.  Too often, they target the most expensive school for which they are qualified and overlook the cheaper alternatives.  Going to a community college for the first two years can cut your college bill nearly in half.  State schools are generally much cheaper than private schools with little difference in the level of education.  No college at all is another viable option for some.  As Mike Rowe points out, trade schools are much cheaper than traditional colleges and are a great option for someone that wants to learn a skill and make good money.

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