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This piece was adapted from "You Will Own Nothing: Your War with a New Financial World Order and How to Fight Back" by Carol Roth, available for pre-order now and out July 18.
As the student lending pause granted during the COVID insanity comes near its conclusion and the Supreme Court made the appropriate ruling that the president can’t just forgive student loans at his whim, a few things are clear. One is that taxpayers shouldn’t be on the hook for someone else’s decisions. Another is that the government has done nothing to fix the problems related to the giant wealth transfer they have enabled from young people to colleges and their administrators. But most staggering is that going to college is making Millennials and Gen Z less, not more, wealthy.
As I did the research for my upcoming book, "You Will Own Nothing," one of the most surprising set of facts I found related to earnings and wealth of younger generations.
For example, writer and pundit Kevin Drum analyzed median household incomes for the Boomer, Gen X, and Millennial generations at a midpoint of age 40. What he found is that the median income for Millennials, even when adjusted for inflation, was 21% higher than the Boomers’ median income at the same age and more than 10% higher than Gen X’s. Again, these are inflation-adjusted gains.
However, when you look at the wealth story, both in terms of overall wealth as well as homeownership (which is the largest wealth asset across households in the United States), Millennials are significantly lagging the other generations at the same point in time.
In the aggregate, despite being a large generation, Millennials hold a lower share of wealth (percentage of overall wealth) than previous generations held at the same age. Insider reported, “When Boomers were roughly the same age as Millennials are now, they owned about 21% of America’s wealth, compared to Millennials' 5% share today, according to recent Fed data.”
One of the culprits that may seem unlikely is college education. More specifically, the cost of college and university educations and the massive debt loads that young people are incurring to get them.
To put it bluntly, college and university degrees have become the biggest legal financial scam in the country, and the U.S. government has morphed into the largest predatory lender in support of it.
Individuals, sometimes even minors with parents co-signing or young individuals who have just turned eighteen, sign up for substantial financial commitments that delay or hinder their ability to create wealth if they can’t generate an appropriate investment return. It can even burden their families.
As of Q1 2023, in the age group 25 to 34, around 15.1 million Americans held around a half-trillion dollars in college loan debt principal, and in the 35-to-49 age group, 14.7 million Americans held $636.2 billion.
Now, debt can be useful in helping to increase your return on assets, such as when appropriately used to purchase a home or education that delivers a good return on your investment. However, with college educations, debt is being pushed and utilized in a way that is decoupled from achieving ROI.
The government nationalizing a large part of the college lending business has driven up college costs in recent decades at a rate of almost five times the growth in GDP and a staggering almost eight times the growth in wages, according to Forbes.
This has allowed colleges to profit directly at the expense of young people, increasing the cost of higher education far past the increase in benefits received from higher education. And the schools have absolutely no risk, creating a complete and total moral hazard.
The profiteering college education structure is having a major impact on economic freedom and wealth creation for young individuals, as it is not enabling a good financial return, or any return on investment in some cases, for too many of those buying educations. Individuals aren’t contextualizing their choices about what they want to do and what they may need to do to fulfill their future objectives.
This indebted youth-to-college pipeline has ultimately transferred a ton of wealth from young people to colleges and universities at the expense of the young setting out on a path to generate their own wealth.
Remember that the opposite of creating wealth through the ownership of appreciating assets is the accumulation of liabilities and debts.
When we hear about the benefits to students from attending college, it is always presented in terms of higher earnings. But if slightly higher earnings come with high debt loads that take years or even decades to pay down, that not only weakens the individual’s financial position, but also delays the ability to accumulate wealth.
And, the wage gap between those with and without college educations itself has been recently contracting.
To shift this, students who are taking out loans should be shown, at every step of the process, what their expected return on their investment is, based on their major, school, and other factors, and they should be required to sign off on that as part of the process.
Colleges need to either be part of the underwriting process and hold a piece of the loan or be allowed to be sued if graduates aren’t able to use their degrees to better their professional outcomes.
We are already giving the schools a quarter of a trillion dollars’ worth of taxpayer money at the state and local levels each year directly, on top of all other types of benefits and incentives that prop up their profiteering schemes. The least they could do is make the degrees they are selling worthwhile.
And government should be removed from student lending altogether.
Ask yourself, if the government wanted to keep young people from economic prosperity for their lives, would they do anything differently than they are doing now?
Would this keep them dependent upon the government? Would this make them vote for more government that could “relieve them” of the burdens (those same burdens that were truly created by the government to begin with)?
Profiteering has created a real wealth transfer that benefits the connected at the expense of the average American. Getting more education, in the ultimate ironic twist, may be a predictor of younger generations owning nothing.Carol Roth's new book, “You Will Own Nothing,” is available for pre-order now.
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Carol Roth is a recovering investment banker, the New York Times best-selling author of “You Will Own Nothing,” and a business adviser.