While they are occasionally confused by reporters shaming beachgoers, the Millennial and Gen Z generations are incredibly different—and the biggest difference may end up being financial.
While many millennials are bogged down in student debt, they can be followed by a generation with no student loans at all and a better chance to build a financially independent future. Millennials fought for spots at the best schools—and dug themselves into years of debt for it—but students of Gen Z may have the upper hand now, giving them the ability to negotiate the cost of education.
Less applicants = less competition = less tuition.
Due to coronavirus, the amount of people traveling from other countries to attend American schools is likely going to decrease. A lot of schools rely on tuition from international students for a good portion of their income, so this change will hurt their bottom line. Plus, the Millennial generation was a massive generation. Gen Z is simply not as large. There are far less students to go around, and every school wants to fill their roster to maintain their status and reputation.
With many families across the country in financial distress, fewer students will be opting for the $60,000-per-year colleges when they don’t need to. Except for those planning to enter fields like business, law, medicine or engineering, it’s becoming apparent that you don’t need to pay that price for a college degree. State schools with lower in-state tuition and community colleges will likely be growing in popularity.
With a smaller applicant pool, schools will be fighting over candidates more than candidates will be fighting over schools.
Buying an education will start to look like buying a house. The school offers you a financial aid package and you’ll compare it to other offers you’ve received and counter until you settle on a price you can afford. The better applicants will have even more power to get the best deal on their education.
With the power to negotiate, Gen Z students may be able to leave college with little to no student debt.
How does this affect retirement?
I’ll explain this mathematically. Say a student graduates with $50,000 of student loan debt. Let’s assume that they pay $500 each month with a modest interest rate and can pay off that debt in 10 years when they’re roughly 32. Once paid off, they start putting that same $500 into a retirement account until they reach the full retirement age of 67. Considering a hypothetical 6% rate of return, they will have about $670,000 by age 67.
A similar student who graduates without student loan debt can start saving for retirement immediately. Starting at 22, they put that same $500 into a retirement account every month until they reach 67. With the same rate of return, they’ll amass about $1.3 million by age 67.
Without spending an extra penny, they just nearly doubled their retirement account just by avoiding student loans.
Student loan debt has crippled a huge percentage of our population, but times are changing. If you’re applying for college and receiving aid packages, you have the power to negotiate. Saving on tuition now will have massive impacts on your financial future.
Remember these three things:
1. It is never too early to start saving for retirement.
2. The easiest way to get out of debt is to not get in it.
3. Know your worth. It’s greater than you think.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regards to your individual situation. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results.
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