The Surprising Student Debt Problem of High Earning Millennials
Leisl L. Cording, CFP®
Senior Vice President & Financial Advisor
Sixty-five percent of college seniors graduating from private or public college have accumulated student loan debt.1 That debt averages out to around $28,950 per graduate.2 And while student loan debt is a burden to any graduate, it can have a surprisingly negative effect on HENRYs, or those considered to be a “High Earner, Not Rich Yet.”
Here's why high-earning millennials are feeling just as stressed, if not more, about their looming debt as their peers – and what can they do about it.
Who Are HENRYs?
As mentioned above, HENRY stands for “High Earner, Not Rich Yet.” A common phrase in the world of finances, these are typically young professionals who are earning high incomes, but due to expenses or debt, they are not yet able to accumulate net worth.
Student Debt Problems For HENRYs
Millennials across the board are faced with an immense amount of student loan debt. But for HENRYs in particular, there are a few special circumstances that can make the weight of their debt feel even heavier.
Debt Stress: Imagine loading up on extra classes, pulling frequent all-nighters, tackling residencies and more to earn a degree and find yourself in a well-deserved high-paying job. Now, imagine having to live paycheck to paycheck, even as you’re earning a much higher salary than others your age. That’s the reality many HENRYs who’ve accumulated student debt face. And because of this, they’re experiencing debt stress that their lower-income peers may not feel to the same extent.
Debt stress is a real issue that can be physically experienced by those facing large amounts of debt. The stress felt by the weight of debt-bearing down can manifest itself in many ways, including fear, panic, anger and denial.3
Higher Taxes: The more money HENRYs make, the higher the tax bracket they end up in. And while tax advantages related to student loan debt and interest can bring some relief to millennials, the more you make, the less relief is given, in most cases. So HENRYs are faced with both a bigger chunk of their paycheck going towards Uncle Sam while still being responsible for paying back student loan debt month after month.
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No Time for Extra Income: These days, you may be hard-pressed to find a millennial who isn’t working a side hustle. Whether it’s driving for a rideshare company, blogging for money, picking up a shift in retail or selling crafts online, lots of people pursue a second job to help offset their monthly spending and student debt.
But when it comes to HENRYs, they’re often faced working long or odd hours their lower-income counterparts may not be experiencing. Especially if these HENRYs are entering into their first real job or they’re still lower on the corporate ladder, they could be expected to put in longer days than the typical 9 to 5. This leaves them with little time or energy to pursue a hobby or commit to a second job.
With student loan debt standing at $1.75 trillion, a majority of today’s millennials are faced with how to pay down their portion while growing their savings and building net worth.1 And for those who worked hard all through college to land a high-paying job, student debt can be a serious and unforeseen hindrance to their personal finances.
One way to address this challenge is to see if you’re eligible to refinance your student loans – and if it makes financial sense for you to do so. Refinancing at a lower interest rate could help you to save money on the total cost of your loan and also pay it off faster.
Qualifying for a refinance is one area where HENRYs are at an advantage – their higher incomes make them more attractive to lenders, assuming they also have good credit and that their overall debt-to-income ratio isn’t too high.
Next, you should consider the types of student loans you have. You may want to refinance if you have high-interest private student loans, but if you only have federal loans, refinancing might not make sense. Many federal student loans offer benefits such as Public Service Loan Forgiveness (PSLF), temporary student loan deferment and forbearance, and income-driven repayment plans. Check out the terms and options for your loans because if you refinance federal student loans with a private lender, you may lose some of these benefits.
Lastly, you should consider your overall financial health. If you have other high-interest debt, such as credit card debt, paying off those debts should be your top priority before considering refinancing your student loans. Not only will paying off this debt faster improve your credit score, but it may also save you more on your monthly payments than refinancing lower-interest student loans may.
Each situation is different, so talk to your financial advisor about refinancing your student loans or about other financial tips and tricks to start building a strong financial foundation for your future. Don’t have an advisor? Our team at Weiss, Hale & Zahansky Strategic Wealth Advisors can help you make a plan for your student loan debt, and for your financial future, using our strategic Plan Well, Invest Well, Live Well process. Contact us at (860) 928-2341 or info@whzwealth.com to get started.
Presented by Senior Vice President, Financial Advisor, Leisl L. Cording CFP®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259, 860.928.2341. http://www.whzwealth.com
1 https://educationdata.org/student-loan-debt-statistics
2 https://ticas.org/our-work/student-debt/
3 https://www.debt.org/advice/emotional-effects/