Another Rough Week of News for Millennials and Their Money

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It's not news that -- workers born after 1981 -- have it hard, economically speaking. But in the past week, two new reports have cast light on just how tough it is out there for the youngest generation in the job market. Instead of building on their careers, paying off their student loans, and working on buying their first homes, the largest generational cohort in history are -- according to studies released by Pew Research and the Department of Education -- increasingly living at home, eking out a living at low-paying jobs, and falling behind on their student loans.

These economic woes are just more of the same for Gen Y. They were already carrying the highest student loan debt in history, and they graduated into the worst job market since the Great Depression. According to an analysis by the Associated Press, 53.6 percent of college grads 25 and under are either unemployed or underemployed. And on average, they're carrying $26,600 in student loan debt.

A recent report from the Department of Education makes it clear just how dire the problem is becoming: According to the DOE, 22 percent of borrowers enrolled in the direct federal student loans program are in default or forbearance. This, incidentally, matches the overall rates of student loan delinquency. In other words, more than one in five borrowers aren't making enough money to meet their obligations.

Apparently, these recent grads also aren't blowing all their money on rent: According to a study released last week by Pew Research, 36 percent of millennials are living at home with their parents. By comparison, 32 percent were doing so in 2007, on the eve of the Great Recession and 34 percent were doing so in 2009, when the recession officially ended. In other words, for millennials (and their parents), the problem is getting worse, not better. Indeed, this is the highest percentage of young adults living at home since the 1960s.

As we've reported in the past, federal and state governments are working on proposals to help ease the student loan debt crisis. Pay as You Earn, Obama's federal program, caps debt repayment at 10 percent of a borrower's discretionary income, and forgives any debt that remains after 20 years of payments. Meanwhile, Oregon's Pay It Forward program will let borrowers attend a state university tuition-free, but will require that they pay 3 percent of their income for 20 years.

These programs, while attractive, will bear fruit down the line, but for now, the economic landscape for millennials looks bleak -- and it doesn't show many signs of improving any time soon.

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Another Rough Week of News for Millennials and Their Money

One solution is to take advantage of some of the loan forgiveness opportunities that are already out there. The military, the federal government, and state governments offer dozens of programs that will wipe away at least part of your debt, in return for a few years of service. Most are tied to specific, in-demand professions in areas such as health care, law enforcement, and education. but others -- like the military, the Peace Corps, and AmeriCorps -- are open to people from a variety of majors and disciplines.

American Student Assistance, a nonprofit group that helps people manage their student loan debt, has produced a free list of occupation-based loan forgiveness programs. It's worth a peek -- even if you don't plan to become a firefighter, policeman, speech therapist or social worker.

Photo: Brett Holt, flickr.com

Several programs will allow you to structure your repayment of federal student loan debt based on your income. For example, if your loan payments are more than 15 percent of your discretionary income, you may qualify for income-based repayment, under which your monthly payment calculated based primarily on what you earn, and after 25 years of payments, any remaining money owed gets forgiven. Other programs, including income-contingent repayment and pay-as-you-earn forgiveness, are pegged to different income levels.
Nobody wants to die, go through bankruptcy, or suffer a total and permanent disability. However, if you experiences one of these life events, your federal student loans will be discharged. The banks behind private loans, however, may still go after your cosigners in an attempt to recoup their losses.

Assuming you're not a too-big-to-fail bank, the idea of going deeper into debt in order to make more money may sound counterintuitive. However, in many fields, a graduate degree can vastly increase earning power. "What's It Worth," a publication of Georgetown University's Center on Education and the Workforce, ranks graduate programs by their return on investment. Not surprisingly, degrees in medicine, the social sciences and hard sciences top the list.

Photo: Serge Melki, Flickr.com

Ultimately, student loans are like any other debt: Getting out from under them requires that you understand your situation and keep your focus on repayment. In this regard, the best advice is also the most obvious. First, be aware of how much money you owe and what the interest rates are on each of your loans. Work on paying off the highest-interest loans first, while making minimum payments on the rest of your loans. As you pay off each loan, take the money that you were spending on it and roll it over onto your highest interest loan.

But, while discipline is good, it's also important to reward yourself. Paying off loans is a big deal: give yourself a nice present every time you put one to bed!

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Bruce Watson is DailyFinance's Savings Editor. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.
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