High-Earning Millennials Have a Surprising Student Debt Problem

You might think that HENRYs (High Earners, Not Rich Yet) would be doing just fine after college, but they're in serious debt just like most other new grads. In fact, in some ways, they face a few added challenges.

(Image credit: Westend61 / Mauro Grigollo (Westend61 / Mauro Grigollo (Photographer) - [None])

In today’s job market, a college degree is the new high school diploma. However, the cost of higher education remains the responsibility of students. It's difficult for people of any age to predict where they, or the economy, will be in 10 or 20 years. Despite this short-term, highly fluid job market, students commit to loans that take up to 25 years to pay off, if paid at all.

The result is what former Consumer Financial Protection Bureau student loan ombudsman Seth Frotman called a "trillion-dollar black hole in our financial market." He recently testified before Congress about the extent of the situation and advocated for action to correct it. Statistics back up his premonition and urgency. Student loan debt sits at $1.4 trillion, and nearly 40% of borrowers are expected to be in default by 2023, according The Brookings Institution.

High Earners, Not Rich Yet individuals (HENRYs) are just one group particularly affected by this “black hole.” Student loans are one of the main reasons why these individuals are classified by this acronym. The student debt crisis has lasting effects on HENRYs and can hinder their net worth and financial growth for years to come.

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Financial Distress Leads to Emotional Distress

Overwhelming debt loads imperil more than just bank balances. When debt becomes unmanageable on a long-term basis, it leads to debt stress that negatively affects everything from happiness and work performance to relationships.

According to a recent Student Loan Hero survey, more than 60% of respondents worried too much about their student loan debts. Also, 360 Degrees of Financial Literacy reports that 81% of Americans with student loans have made financial or personal sacrifices, such as delaying contributions to a retirement account or having to work another job. Financial distress, uncertainty and the inability to move forward with essential life events result in stress that can diminish emotional well-being.

HENRYs are particularly affected by this emotional distress since they are high income earners yet can often find themselves living paycheck to paycheck. Due to their high incomes, they have to pay a larger percentage in taxes than lower earners. Also, while non-HENRY individuals may have had time during college or in conjunction with their first full-time jobs to have a part-time job for supplemental income, many HENRYs had course loads in college and first jobs requiring long hours that did not allow for this.

One Solution for Your Stress: An Emergency Fund

Creating an emergency fund is an important, and often forgotten, way that HENRYs can — and should — use to combat emotional and financial distress. Any form of savings, specifically emergency funds, creates a psychological safety net for individuals to relieve stress felt by other financial obligations, such as debt or loans.

It’s easy for savings to be forgotten while paying down massive student loans. HENRYs must remember to first become financially secure in their savings and emergency funds, so they then can increase their efforts to pay off student loans with minimal stress. Having an emergency fund is the first priority, paying off debt is the second.

Locating new sources of income can help you increase funds to add to any emergency situations you may encounter in the future. Comparably, reducing your expenses can also free up additional cash flow to add to the funds. Shoot moderately when thinking about how much you should have in an emergency fund — just enough to handle life expenses that may occur, whether it be medical services or purchasing new tires.

Other Strategies to Ease Debt Stress

A college education is becoming the new norm, so students need to begin adjusting for subsequent debt long before graduation. Employing strategies to reduce costs while in college, such as attending community college for the first two years, helps ease the student loans burden.

The Public Service Loan Forgiveness program is one of the bigger repayment programs, where those working in a qualifying public-sector job can wipe out their student debt after making 10 years’ worth of on-time payments. There are more than 100 federal and state-based programs that can help ease debt faster, so it’s important to research what programs are out there to help your specific profession.

HENRYs should focus on building their net worth in order to surpass the not rich “yet” element of their title. These individuals can build their net worth by reviewing their liabilities and paying off high-interest debts, such as credit card debt or car loans, in conjunction with their student loans. A lower debt burden means a higher net worth.

Store your money where it has potential to grow. Look for better rates with online banks, flexible CDs, or even investments, depending on your time horizon. You may want to consider consulting a financial professional to investigate what options or investments may be suitable for you.

Focus on paying the debts with highest interest rates first and pay off the other low-rate debts along the way. To do this, review your liabilities and try to reduce or eliminate them. Credit card debt may be the highest interest rate, making it the first focus area, while your car loan would come in at second. Following that could be student loans and then finally mortgages.

Looking Toward the Future

Two-thirds of college graduates leave school with student loans, averaging nearly $30,000. Most importantly, HENRYs need to focus on pursuing their goals and dreams, rather than the overwhelming stress of their student loan balances. Establish a savings and emergency fund in order to relieve financial stress and allow room to start paying off debt. Analyze your spending and attempt to make more income from a side passion of yours.

You have worked hard to get to this position, so be smart about the ways you utilize funds.

This information is for general purposes only. This information is not intended to be a substitute for specific professional financial advice. Please consult a financial professional in regards to your own individual situation. Advisory Services and Financial Planning offered through Vicus Capital, Inc., a Federally Registered Investment Advisor. Registered Representative offering securities through Cetera Advisor Networks LLC, member FINRA/SIPC. Cetera is under separate ownership from any other named entity.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Chad Chubb, CFP®
Founder, WealthKeel LLC

Chad Chubb is a Certified Financial Planner™, Certified Student Loan Professional™ and the founder of WealthKeel LLC. He works alongside Gen X & Gen Y physicians to help them navigate the complexities of everyday life by crafting streamlined financial plans that are agile for his clients' evolving needs. He helps them utilize their wealth to free up time and energy to focus on their family, their practice and what they love most.