A New Lost Generation?

The group of people who came of age during World War I (1914-1918) were sometimes referred to as “The Lost Generation”.  The term was popularized by the great author Ernest Hemingway and was front and center in his 1920’s novel, THE SUN ALSO RISES.
Some sociologists characterized this group as being disoriented, wandering and directionless. A bit harsh, I would say. Yet, looking at some recent demographic data, I wonder if a 21st century Lost Generation is emerging 100 years later.

What am I referring to is the millions of young Americans who are hamstrung or perhaps handcuffed by student loans and are struggling to repay them. The average student loan now rests at $34,000 and many young adults with unusually high balances are on 20 year payment plans to retire them.  Some unscrupulous lenders came in at almost predatory interest rates and added fuel to the fire although they are not as prominent today. According to recent data and projections provided by the Brookings Institution, many who owe are in default. There is a unique and scary divide on defaults. A stunning 47% of people with loans to fund education at a for-profit institution are in default. Conversely, 13% (still too high) are in default if the loan was for schooling at a non-profit center of higher learning. Also, the Brookings data showed that many people default after many years of dutiful payments. Some people pay for a dozen years and then fall off the ability to pay. Brookings projects that as many as 40% overall could be in default by 2023. How is that possible? Here is my theory: our economy has been in recovery after a terrible downturn in 2008 aka The Great Recession. At some point, a downturn is inevitable. When it hits, a few million young people who have been struggling to make their monthly payments may default as many will be hit with either short term or perhaps long term unemployment.

Just how big is the total of Student Loan debt? The figure bandied about these days is $1.4 trillion. Here are some data compiled by the New York Federal Reserve Bank for January, 2018 which pegs student loans as the 2nd largest category of loans in the U.S. Details are:

Home Mortgages    $8.7 Trillion

Student Loans.          1.34 Trillion

Auto Loans.               1.19 Trillion

Credit Card Debt        784 Billion

Home Equity Loan     412 Billion


Some crazy things are going on in an effort to prevent defaults. Some 22 states will pull licenses for nursing, medical technicians, doctors, and even teachers certifications if you have missed a certain number of payments. Three states—Montana, Iowa, and Oklahoma have suspended drivers licenses to those in default. Really? In rural areas, how do you get to work where there is no public transportation? Does a friend give you a ride every day? C’mon. The states are sensitive about the drivers license issue and say that it is rarely enforced. How does a nurse pay back her debt when she can no longer work as a nurse? It is a classic Catch-22. Remember, even if you declare bankruptcy your student loans are not forgiven so people cannot “game the system” that way.

Some people say that student loans are harmful to the economy. On a short term basis, that strikes me as sheer idiocy. The money does not sit there. It goes to schools for tuition, room and board and greedy book publishers pick up some funds. That money goes to pay salaries and maintenance at the institutions.  Long term, I do believe the approximately $1.4 trillion and growing will be a drag on the economy. Some four out of 10 recent graduates stay living with their parents for a few years to allow them to buy a vehicle and pay down some of the debt until a raise or two or a better job arrives.  Some 78% of millennials with student debt state that they cannot save for a downpayment on a home. A full two thirds say that they do not feel secure. I could not find figures on this but I am curious as to how many with student debt bypass 401k’s at their place of work until the balance is worked down. Your 20’s and early 30’s are key capital formation years and if you miss the first 12-15 years, you will never catch up with your debt free colleagues.

Solutions? Some have suggested that you pay back as a fixed percentage of earnings. So, a young investment banker with six figure debt can pay it back faster by kicking in a fixed percentage of income each year while a lower paid worker can stretch out payments for a longer period . Others suggest retiring a portion of the debt if you work in public service areas such as teaching, government or nursing. My mild suggestion is that people need to know what they are signing. A lot of people who seem to get in to the most trouble are first generation college students. They have been told that a university degree is a ticket to prosperity. I have met a few canny students who have thumbed their noses at loans and take six-seven years to get their undergraduate degrees. They work either full time and take night classes or sometimes skip a semester and work 50 hours a week to pay the next semester or year in full. They do miss out on the “college experience” to a certain degree but they have no financial millstone around their necks. Also, they tend to attend state schools and with in-state tuition are provided with good value.


I feel for these fine young people. They cannot work a nice summer job and even begin to cover or largely cover expenses as they did in my day. Many will (sadly) become angry and bitter if things do not go their way.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com