A recent study by the Federal Reserve Bank of St. Louis found that almost half (48.8%) of 25 year-olds around the country still live with their parents. That’s almost double the rate since 1999 when only about one-quarter (25%) of 25 year-olds still lived at home.
Twenty-five year-olds are part of the Millennial Generation, those born from the early 1980s to 2000 (generally those aged 18-34). Normally, young people age 25 or so would be living on their own, either in a home or an apartment that they pay for. So why has the number of 25 year-olds still living with their parents doubled over the last 10-15 years?
The researchers at the St. Louis Fed say that it is due to prolonged effects from the Great Recession of late 2007 to early 2009. The primary causes, the Fed concludes, are: student loan debt, weak job prospects and an uncertain housing market. As a result, more 25 year-olds are choosing to stay at home, and many who have left the nest are moving back in with their parents or other family members.
This trend of young people living with their parents has had profound effects on the housing market. As the chart at left shows, the number of young adults (ages 18-34, not including full-time college students) has increased by almost three million since 2007 before the recession began.
Yet the number of households run by these same young adults has actually gone down slightly over the last eight years. This is despite the fact that the unemployment rate for this group has declined from over 12% in 2010 to 7.7% this year, and interest rates remain near historical lows.
In fact, the nation’s 18-34 year-olds are less likely to be living independently of their families and establishing their own households today than they were in the depths of the Great Recession in 2008. This trend has worsened despite the economic recovery since 2009.
Student loan debt was the #1 reason cited by 25 year-olds for still living with their parents. Student loan debt totaled almost $1.2 trillion by the end of last year. Student loans are the fastest growing debt as compared to credit card debt, auto loans and home equity lines of credit (HELOC).
Student loan debt is the only kind of household debt that rose during the recession. It’s now the second-largest consumer debt category after mortgages. The chart also illustrates how fast student loan debt is rising. Increasingly, former students are having trouble repaying their loans. In the past several quarters, student loans have had the highest delinquency rate of any loan type.
At the end of 2014, only 37% of all 43.3 million student loan borrowers nationwide were making payments on time and reducing their loan balances. Two-thirds of the nation’s student-loan debt is held by people over age 30. The Fed economists found that 30 to 40-somethings have the highest loan balances of all borrowers.
Estimates vary widely on the average student loan balance outstanding at graduation, ranging from $27,000 to $33,000. Since college tuition rates are rising faster than almost anything on the planet, the average amount owed by graduates goes up every year.
You may recall that, at President Obama’s insistence, the federal government took over the student loan market in 2010. Loans are available to undergraduates, post-graduates and parents of students. The bulk of these loans are made to students from low and middle income families.
Some argue that many of these kids have no idea they will be saddled with $27,000-$33,000 in debt if they finish college, or that they will have to repay the debt even if they don’t graduate. I would argue that if they don’t know this, they shouldn’t go to college in the first place.
President Obama continuously pushes for “higher education for all” and often advocates for free community college for any students who want to attend. He would have the government pay for this, if he could get his way.
In my view, this is doing a disservice both to individuals and to the economy as a whole. Not everyone should go to college.
I could go on and on with this controversial issue, but I’ll leave it there for today.
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