How Does Student Loan Debt Impact Students and Recent Graduates?June 10, 2022
It’s no secret that student loan debt is a major problem. Nationally, outstanding student loans reached $1.59 trillion as of the first quarter of 2022, and over 40% of people who attended college have student loan debt.
Although student loans can help borrowers progress in their careers by earning degrees, they can also have significant drawbacks. The negative effects of student loan debt are numerous, impacting borrowers’ financial stability and mental health.
Negative Effects of Student Loan Debt
The impact of student loan debt on borrowers can be substantial. Student loan debt effects include:
1. Borrowers May Fall Behind on Other Bills
On average, borrowers have $39,341 in outstanding federal and private student loans. With such a high loan balance, it can be challenging to make ends meet on an entry-level salary, and recent college graduates can struggle to afford their rent, utilities, and other essential expenses along with their student loan payments.
If borrowers do fall behind on their loan payments, the consequences can be severe. Depending on the type of loans they have and how long it’s been since they made a payment, borrowers may have to deal with wage garnishments, collection agencies, and late fees.
2. Graduates May Delay Saving for Retirement
Because of the high cost of student loan debt, many graduates delay saving for retirement. A study by Pew Charitable Trusts found that borrowers reported saving less for retirement to pay off their student loans.
By putting off saving for retirement, graduates lose out on compound interest and market growth, making it harder for them to establish a large enough nest egg for their golden years.
3. Outstanding Loans Can Affect Mental Health
The stress of student loans can have a significant impact on your mental health. In a study by Student Loan Planner, one in 14 student loan borrowers with high outstanding balances experienced suicidal ideation. Other borrowers often report feeling increased levels of stress, depression, or shame.
[Important: If you or someone you know is having suicidal thoughts or is experiencing a mental health crisis, the National Suicide Prevention Lifeline is available 24/7 to provide free and confidential support. Call 1-800-273-8255 or chat online.]
4. Borrowers May Be Unable to Afford a Home
Between your student loan payments and other expenses, it may be hard if not downright impossible to find extra money to save for a down payment. It’s a common problem among recent college graduates. The Federal Reserve reported that the decline in homeownership among young adults is partially due to rising student loan balances.
5. Debt Can Affect Employment Choices
When considering the impact of student loan debt, one commonly overlooked consequence is how loans can affect employment choices. Some graduates may decide against working for non-profit organizations or public service agencies because those types of employers generally pay less than for-profit corporations, and they may worry that a lower-paying job won’t be enough to cover their loans.
Some borrowers may also put off starting their own business or freelancing because they worry about fluctuations in income and being unable to afford their loan payments.
6. Student Loan Borrowers May Put Off Getting Married or Having Children
How does college debt affect future life choices? Just how far-reaching the effects can be may be surprising. Student loans can even cause borrowers to put off major life choices like getting married or starting a family. A study from the Center on Poverty & Social Policy at Columbia University found that 12% of student loan borrowers said they delayed having children because of their loans.
7. Debt Can Prevent Borrowers From Establishing an Emergency Fund
When you are dealing with student loans, you likely don’t have much money left over each month. It can be difficult to save any money, let alone build an emergency fund with three to six months’ worth of your expenses tucked away.
But not having an emergency fund leaves you vulnerable. A single unexpected expense — for example, a problem with your car’s engine or an emergency veterinary bill — can wipe out your bank account.
Managing Your Student Loans
Although student loans can have some drawbacks, there are ways to mitigate the negative effects of student loan debt. To manage your loans more effectively, consider these options:
Create a Budget
If you haven’t already, create a budget to know exactly how much money you have coming in and going out every ninth. Once you have a budget in place, look for any areas that you can cut back to give yourself some more breathing room.
If you’re already living close to the bone, you may not have many areas to trim. But some common areas that you may be able to reduce or eliminate include:
- Subscriptions: Many people subscribe to streaming services, apps, and other tools. They may not seem like much — $1 to $10 per month — but they can add up over time. Review your statements and cancel any subscriptions that you don’t regularly use.
- Groceries: If you find that you never seem to have anything ready for dinner, you can save money — and make your life easier — by meal planning and batch cooking. Freeze the meals so you can quickly thaw them out when you need them; it will allow you to eat at home more and skip takeout.
- Rent: If your rent is too high, see if your landlord will negotiate the price. Or, consider getting a roommate (or two) to split the bill.
- Car insurance: If you haven’t shopped around for car insurance, you could be overpaying for coverage. Get quotes from multiple carriers to see if you can reduce your premiums.
- Entertainment: Make use of free or low-cost sources for entertainment. For example, you can often get e-books, movies, and even audiobooks from a local library. Or your town may host free festivals or concerts. You can search for free events near you with EventBrite.
Explore Repayment Options
Depending on the type of loans you have and your loan servicer, you may have repayment options that can make your loan payments more affordable.
For example, federal loan borrowers may be eligible for income-driven repayment (IDR) plans that base their payments on a percentage of their discretionary income. Or, you may be eligible for a temporary deferment or forbearance if you’ve lost your job or have become ill.
Contact your lender to discuss what alternative repayment options may be available.
Consider Student Loan Refinancing
Student loans can be so hard to repay because of their high-interest rates. Student loan refinancing may be a good option to reduce the impact of student loan debt. If you have good credit — or a co-signer — you may qualify for a loan with a lower interest rate. Over time, refinancing can help you save thousands, pay off your loans faster, and even reduce your monthly payment.
You can get a refinancing rate quote from ELFI without affecting your credit score.*