Student Loan Crisis: Gen Z and Millennials Are Three Times More Likely to Enter Into Nearly Insurmountable Debt

Those entering college have always had to contend with the question "what is a degree worth to you?" Going to college typically means foregoing full-time employment for those four or more years. On top of that opportunity cost is the actual cost of paying for college, books, supplies, room, board, and other expenses. For most of the last century in the U.S., more students and their families saw those costs and still bet on college.

Over time, new schools have sprouted up while established ones expanded to absorb a growing student population. But along with this expansion of education came an expansion of education expenses. A degree that cost about $10,000 a year for the Silent Generation, Baby Boomers, and Generation X would cost $15,000 in 1999, when the oldest Millennials were starting school. That same year of education cost the first members of Generation Z about $23,000.

According to the National Center for Education Statistics, the average cost of the 2020-21 school year was over $35,000.

We wanted to see how, as the cost of college has gone up, attitudes towards paying for college have or have not changed. To that end, we surveyed over 2,500 US adults across generations. While we were most interested in generational differences, we also looked into trends among races, income brackets, genders, and other cross-cutting factors. We used these survey responses, along with data from NCES and other sources, to paint a picture of how college has been and continues to be paid for by most Americans.

Younger Millennials and Gen Z Leaning on Family Help

Our survey put money for college in three categories: family savings, student loans, and “other” (which included sources like grants and part-time work). For each category of financing we asked how important that source was or would be in paying for college — or if it was not a source of their funding at all. We’ll begin by looking at how the use of family savings has changed over the years.

Family contributions can come from a long-term college savings account, intergenerational wealth such as inheritances, or, for very high earners, can simply come out of a family’s overall income. According to the Education Data Initiative, these parental contributions tend to make up the biggest part of a student’s college funding, at least for those currently in college.

Our survey found consistent and significant differences in how much different generations leaned on these kinds of family contributions.

The most salient cleavages don’t necessarily fall between traditional named generations. Here, we took the average of Gen Z and Younger Millennials (from late teens to early thirties), Older Millennials and Gen X (from mid-thirties to late fifties), and Younger Boomers, Older Boomers, and the Silent Generation (from late fifties to late seventies and beyond).

“Students from earlier generations didn't need to lean on parental support to the same extent to cover their costs when they could do it with summer jobs and more modest loans,” says Melanie Hanson, Editor-in-Chief of EDI Refinance.

Our survey results supported this. Among those who attended or plan to attend college, only 23% of Gen Zs and Young Millennials didn't rely on family money for college at all, compared to 37% of Older Millennials and Gen X. This 14 percentage point spread is sharper than the more gradual difference between Older Millennials through Gen X on one hand and Baby Boomers and older on the other.

Breaking it down into sub-generations, we see that Younger Boomers were the least likely to rely on family money, with 48% saying they didn't use this source of money for college.

Millennials Much More Likely to Find Loans Necessary for Financing College

When it came to analyzing student loans by the generation, there wasn’t the same linear trend as we saw for family savings. Rather, there was a clear outlier suggesting one generation was more wedded to loans than the others.

Millenials were the most likely to cite loans as an important part of paying for college, with only 29% replying that they didn’t use loans to pay for their school. The generation ahead of them, Gen X, was 13 percentage points more likely to avoid loans. The generation behind them, Gen Z, was 8 percentage points more likely to avoid loans. Something about those aged 26 to 41 — or about the time they came of age — led them to more consistently lean on loans than either of their closest cohorts.

Millennials were also the most likely to describe loans as “important” for financing their education. Well over half (58%) of Millenials chose this answer, 11 and 10 percentage points more than Gen Z (47%) and Gen X (48%), respectively.

This was even more pronounced among Older Millennials, with 61% saying student loans were important for financing their education.

Hanson of EDI Refinance argues that many Older Millennials were raised to expect they would attend college, and so the group was willing to go further than other generations to make that a reality.

It starts with the Baby Boomers, she says, one of the largest and most prosperous generations in American history due to the post-World War II economic boom. This prosperity brought with it “the promise of upward mobility for their children – those Older Millennials.”

“This expectation created a huge increase in demand for college education at the same time that state and federal funding to universities was being cut. The result was a huge need for student loans to meet these expectations,” Hanson says.

White respondents were more likely than Black or Latino respondents to say they didn’t use loans for college. In fact, 43% of white respondents, compared to 33% of Black and 34% of Latino respondents didn’t need loans.

However, women relied more on student loans than men. This trend is fairly consistent across generations, with 37% of women saying they didn’t use this source of money vs. 43% among men.

A strong majority (60%+) of students and prospective students, from Gen Z to Young Boomers, say other sources of money are important or very important to them. These include part-time work and scholarships or grants. The major benefit of these other sources is that they don’t have to be paid back and they don’t rely on your family’s personal finances.

Over the long-term, these other sources have become more important to students’ ability to pay for college. Just over one-third (34%) of combined Gen X and Boomers say they did not use these funding options at all, compared to only one-fifth (20%) of those in the Gen Z and Millennial grouping.

And just as women were more likely to take out student loans than men, women over the generations have relied more on other sources like jobs and scholarships than their male counterparts. Two-thirds of women reported these sources were important for them 58% of men. This could be taken to imply that there was some absence of family support for young women with college ambitions, relative to young men.

There is already some data to support the contention that, when it comes to funding higher education, daughters are undervalued by their own families relative to sons.

“Despite efforts to move toward gender equality, U.S. parents are still more likely to take out a loan for their son than for their daughter,” said Michael Kitchen of Student Loan Hero, citing this report from the Education Data Initiative. “So more women would need to support themselves with their own loans when compared to men.”

Millennials and Gen Z Over Three Times As Likely to Take On Big Loans as Predecessors

Before we delve into the data on how different generations view student loans, it is worth noting that each generation came into adulthood in different hiring environments and when colleges were priced differently, even when adjusted for inflation.

Average Annual Cost of College by Generation

Gen X began entering college in the early 1980s, when college costs were still around $10,000, where it had hovered around for the past two generations. But by the time Older Millennials began enrolling, they were expected to pay, on average, over $15,000 per year. For Younger Millennials, average annual costs ballooned to over $20,000. The first of Gen Z to begin college saw costs increase again to $23,252 in the 2014-15 school year.

The latest school year for which NCES has data, 2020-21, saw the average cost of attending a college in America explode to $35,331 per year, per student.

That context goes a long way towards explaining the rift between Older Millennials and those younger and Gen X and those older in terms of how much they’ve relied on big loans. The graph above shows the proportion of each generation that either have or will go into more than $50,000 of student loan debt.

As suggested by their higher propensity to take out these large loans, Millennials and Gen Z entered or will enter college during a time when the cost of an undergraduate degree is very expensive — and getting more so every year.

Kitchen points out that even public university tuition has been outpacing consumer inflation according to their data, rising 26% between 2010-11 and 2019-20.

When we split the generations into two sets, Gen Z through Millennials and Gen X through Baby Boomers, we see that over 10% of that younger set made the major financial commitment to borrow more than $50,000 to finance their education. In contrast, only 3% of the older cohort, Gen X and Baby Boomers, took out this much in loans.

Next we can further break up the generations and zoom in on the generations dealing with the most expensive college costs (Gen Z and Millennials). We see that Gen Z is more likely to take out no loans or under $10,000 in loans than Millennials (47% vs. 40%, respectively). Gen Z is overall slightly less likely to take out between $10,000-$50,000 in loans than Millennials (23% vs. 26%).

Across generations, we found that white students were the least likely to take out loans for college. Thirty-eight percent of white students took out no loans, compared to 27% of Black students. This is likely a function of the gross inequity in generational wealth between white families and others. Hispanic students fall in between, with 32% taking out no loans.

Older Millennials Much More Likely to Say Debt Will Pay Off

The reason so many people agree to go into debt for college is because of the assumption that it will “pay off” in the end, whatever that may mean to an individual. We can see immediately that one generation towers above the others when it comes to strongly agreeing that student debt pays off eventually.

Older Millennials were again the outlier, being by far the most likely to strongly agree that student loans pay off in the long-term. This makes sense to a degree, since Millennials were the most likely to take out large loans, and were the generation during which college costs really began accelerating.

College costs have kept right on rising since these Older Millennials graduated, which means that they got a relatively better deal than their younger siblings.

Beyond generations, there were differences across gender, income, and region. For example, men are more likely than women to strongly agree that going into debt for college is okay because it will pay off in the end (although more women said they rely on loans than men, as pointed out above). More people from the Northeast of the U.S. said going into student debt is okay because it will pay off.

Respondents that earned higher incomes ($80,000 a year or more) were much more likely to agree that going into debt is worth it (with 45% somewhat or strongly agreeing, vs. 33% of those earning $40,000 to less than $80,000 and 32% of those earning less than $40,000). This could be a sign that they attribute their higher incomes to their degree, and so believe the debt was worth it given their current financial situation.

Gen Zs and Younger Millennials had the lowest percent strongly disagreeing that student debt is worth it (15% each). This may indicate that they see debt of some amount as acceptable; although as we saw above, Gen Z is slightly less likely to take on debt at each loan level.

Will Rising College Costs Keep Students From Higher Education?

A college degree is increasingly seen as a necessity for many jobs, even if it has nothing to do with the job. Employers use the fact that a prospect has committed to something for four years as a proxy measurement of that prospect’s ability to take on projects and see them through to completion.

The tight pandemic-era labor market has nudged some employers to loosen up arbitrary degree requirements. But an undergraduate degree still imparts on its holders a certain status that can boost socioeconomic mobility and puts certain careers and further education within reach. This is especially true for minorities and marginalized communities.

So maybe you don’t need a degree, but many very much want a degree, and all it represents and the levels it unlocks. But the graph above shows that the trend of more and more Americans wanting to attend college has, according to our data, stopped with Gen Z. Maybe one-fifth of the country is not interested in college, and have embraced one of the many alternatives that are growing in popularity and acceptance — online certificates, coding bootcamps, and the like.

However, it is quite possible that at least some, if not many, in that 21% of younger generations that don’t plan on going to college would actually like a college degree. But they looked at the costs, they looked at the financing options, and they were not able to make it make sense. They asked themselves the question we started out with: What is a college degree worth to me? And after doing the math, can we be surprised if some came back with the answer: Not that much.