Student debt is part of the normal socio-political conversation in relation to how it impacts the economy, but rarely is the human impact of student debt discussed. As someone who took out student loans to support my undergraduate and graduate school educations, I am dealing with the financial impacts and daily reminders of that decision. In this post, I will provide some resources to help you deal with your student loans, but I am mostly going to share my opinions and experiences with student debt.
How to Repay Student Debt
There are a lot of great articles out there that discuss the best approaches, and subsequent ramifications, of different repayment options. A NerdWallet article that I really like, did a good job of boiling down the repayment options to three categories based on your goals.
- To pay less interest: standard repayment.
- Need lower payments: income-driven repayment.
- If you qualify for student loan forgiveness: income-driven repayment.
I highly recommend checking out the NerdWallet article and some of their other resources to help you determine the best repayment method for your situation.
Another resource I found helpful when analyzing the best approach for my situation was the Federal Student Aid loan simulator. This allowed me to drop in my financial situation and pick the best option based on my goals.
There are plenty of additional resources out there. Working with your loan provider is likely the most direct resource to utilize. One important note: student debt advice and information is free and provided by the federal government. Do not pay for any student advice or resources.
The Impact of Student Debt
All of those resources are helpful in figuring out how to deal with student debt, but let’s first get into why student debt is such a big issue in the United States.
Growing Cost of Education
With Millennials slow to buy houses, delaying marriage, and challenged to save for retirement, it is no surprise that they are using their social and political voices to raise the alarm on what is proving to be a defining characteristic of this generation. But why are Millennials any different than the generations before them?
Forbes reported some interesting facts that get to the crux of the problem.
- 2X – Student tuition and fees are growing at 2X the rate of inflation
- 8X – Student tuition and fees are growing at 8X the rate of wage growth
- 1.5 – Student debt is the largest non-housing debt at $1.5 Trillion (updated after below chart)
When you consider those alarming statistics, every graduating class is in worse shape than the last. Given this growing gap between wage growth and tuition costs, young Americans must conduct a serious cost-benefit analysis when considering college and post-graduate education.
My Personal Cost-Benefit Analysis
I am very proud of my educational journey. Looking at my undergraduate education at San Diego State University, I find that my classes did a great job of expanding the way I look at the world, while teaching me a few useful things along the way. I do believe that with today’s unlimited resources at our fingertips, I could teach myself many of the skills and learnings gained from a majority of my classes. That said, living on campus and attending classes exposed me to dynamic and diverse people who taught me to think differently and develop my skills in human interaction. Not to mention, I made many lifelong friends.
Despite earning my undergrad and entering the workforce around the height of the Great Recession, I was able to find a job that paid $45,000 annually after about 5 months of searching. However, I knew my job as a Property Manager was not the career path I wanted, so I opted to go to graduate school to learn about the sports industry and entered Ohio University’s MBA and Master’s of Sports Administration Program. I was drawn to this program because it is perennially rated top in the world. My MBA program exposed me to an entire industry I didn’t know existed and taught me the skills to excel within the sports industry. Likely the biggest benefit of any master’s programs, and no different for OU’s, is access to a deeply connected alumni base.
I share all of this with you to make it clear that I believe I received good educational and social value from attending both schools and it has been imperative to getting me to where I am today.
However, like all things in life, there is a cost. Despite attending public state universities, fortunately having some family support for my undergraduate, and earning scholarships to cover 80% of graduate school tuition in fees, I still managed to rack up nearly $65,000 in student loan debt. Looking back, this is nuts!
Pros of Student Debt
As I’ve mentioned a few times already, student debt allowed me to get the education I wanted and gain the experiences that have shaped my life. Without this financial support, I would not have been able to afford the costs of attendance (if only it was more affordable…).
Additionally, there are a lot of repayment options for federally-secured student loans as outlined in the NerdWallet article I previously shared. Very few loans in life come with flexible payment options.
Challenges of Student Debt
Now into my 30s, I often look back at the ridiculous things I did as a teenager and count my blessings I somehow made it out alive. Needless to say, my decision-making skills have advanced a lot since I was a teenager. With this in mind, it blows my mind that we ask 17/18-year-olds to make a financial decision that will impact the rest of their lives. At 18, I had no concept of retirement, debt, interest, principal or even how to budget appropriately. It begins to feel predatory that teenagers lock themselves into financial debt before their adult lives have even begun.
To compound (that’s a financial pun) the issue, student debt is one of the only forms of debt that can’t be forgiven through bankruptcy. So, even if borrowers are backed into a corner financially and the debt has become out of control, there is no way to be relieved of it.
As I mentioned in my personal anecdote earlier, it took me months to find a job after both undergraduate and graduate school. This meant no income and lots of expenses. Despite no form of income, once I graduated, my student loan payments started up. The lack of a grace period puts student borrowers into an immediate financially challenging scenario. The point of taking out student debt is to pay for the education that will ultimately help you gain a job. However, depending on the industry, economy, and many other factors, it is often very challenging to get a job. Talk about a rough welcome to adult life!
One option to avoid payments during the times where you don’t have a job or can’t afford payments is to claim forbearance. During forbearance, you delay paying your monthly student debt bill, providing a brief respite. However, you continue to accrue interest, raising your overall outstanding debt.
Coming out of grad school, I obtained a dream job but unfortunately did not earn enough to support living in expensive San Francisco. What was I to do? Give up on the dream job that I just spent the last two years going to graduate school to obtain? Of course not, I declared forbearance against my student loans and utilized the maximum time allowed (usually in periods of 12 months up to a total of 36 months). The problem with this approach is that my $65,000 in student loans has grown to over $78,000 due to the capitalization of my accrued interest. This was emotionally crushing because I felt as if I was already in a hole that I couldn’t afford and it just kept getting deeper.
Beyond forbearance, there are other options to decrease your monthly payments to best fit your financial situation. The challenge with opting for a lower payment structure is that it increases the time it will take to pay off the loan, allowing a longer period of time for interest to accrue. In many cases, if you take 20 years to pay off your student loans, you will end up paying double what you were lent.
We’ve gone through the good, the bad and the ugly of student debt, so let’s bring this conversation full circle.
Financial and Emotional Impacts of Student Debt
The crushing burden on student debts has impacts in many forms. These can be both financial and emotional.
Financial Impacts
Millennials burdened with student debt have less purchasing power. The need to pay off large student loans means that our hard-earned disposable income is being put towards trying to keep up with debt interest instead of reinvesting it into the American economy.
Due to this diminished purchasing power, Millennials are also delaying buying homes across the country. According to Experian and the National Association of Realtors, 83% of non-homeowners say student debt is preventing them from purchasing a home. Beyond not having enough cash flow to support a home purchase, student debt often hurts borrower’s debt-to-income ratio, an important factor in qualifying for a mortgage.
Additionally, borrowers living paycheck to paycheck often need to take on credit card debt to cover expenses and not miss student debt payments. This is very dangerous because now borrowers are taking on multiple forms of debt, of which, credit cards often carry interest rates as high as 30%. I found myself in this situation a couple of years ago, quickly racking up over $10,000 in credit card debt. I recently paid it off, due to aggressive budgeting and job changes leading to income increases. Take it from my experiences, this is an overwhelming situation to be in and should be avoided at all costs.
Finally, one of the biggest impacts won’t be felt for 30-40 years. Because of higher debt, borrowers are unable to begin saving for their retirement, often missing out on employer matching incentives. This puts my goal to retire at 50 in major jeopardy and will require me to find ways to catch up once my income has increased. I just hope it’s not too late by then.
“80% of my emotional breakdowns over the past decade have been related to financial stress.”
Emotional Impact
As someone who usually keeps my emotions in check, I would guess that 80% of my emotional breakdowns over the past decade have been related to financial stress. The feeling as if you are in quicksand and no matter what you do you are unable to dig out of the dire financial situation you are in. It’s happened when I got a parking ticket, veterinary bill, or medical bill and I realized I had no emergency savings and was living paycheck to paycheck. I don’t wish that financial stress on anyone, and yet 6 in 10 Americans don’t have enough left after expenses to save and 40% of Americans couldn’t cover a surprise $400 expense.
Financially-induced emotional stress affected all aspects of my life. It made me wary of joining friends for a dinner out, put added pressure on my job to earn a higher wage, impacted my dating habits, and ultimately made it more challenging for me to focus on the future. Student debt is not the only factor in this equation, but it is a big contributor.
My Opinion on Student Debt
There is a lot of talk about what to do with student debt in the economic and political spheres, which shows that our institutions realize the threat it poses to America’s future as a global economic leader.
I personally don’t believe in handouts. While I would happily accept student loan debt deferral if it was offered, I am also a strong proponent of paying back your debts where they are due.
I ultimately want to challenge the underlying infrastructure that got us to where we are in regard to student debt. Having a college degree has been a baseline requirement for any job I have ever applied for. If this is going to be the status quo going forward, there need to be more affordable options to not load up our future generations with burdensome debt and adversely impact underprivileged communities.
A system where public schools tuition is free or significantly-reduced and private schools have no restrictions on tuition fees feels like a good solution. This still creates a free market for those who want it but makes education more affordable to all.
I am sure there are impacts on how this could impact teachers’ salaries and the quality of education at public vs. private schools, but I will leave the experts to figure out how to navigate that.
Considerations Before Taking on Student Debt
- During your consideration process to attend undergraduate or graduate school, decide if attendance will help you achieve your future job. If less expensive trade school is a more direct path to your career goal, strongly consider that approach.
- Understand the ins and outs of how student loan debt is structured and the repayment requirements.
- Try to take on as little debt as possible. You may think that because you’re young, you’ll be able to pay it off easily when you land a six-figure job out of undergraduate school…that just simply isn’t how it works for the majority of people.
- Prioritize retirement savings wherever possible, even if that means starting during college.
A World Crisis: Pandemic Impact on Student Loans
For those of us currently paying off our student loans, the recent Covid-19 stimulus package passed by the federal government provides some relief to student loan payments. I’ve outlined a few of the highlights below, but check out the full details here.
- Federally-held student loan payments will be suspended until September 30, 2020
- Student loan interest will be waived until September 30, 2020
- If you are able to still pay monthly, payments will go against the principal and is a good opportunity to catch up
- The six months of suspended payments count towards loan forgiveness programs, including Public Service Loan Forgiveness (PSLF) and Income-Driven Forgiveness (PAYE, REPAYE, IBR)
- This does not apply to private student loans
Check out additional topics to make personal finance SLIGHTLY EDUCATIONAL on our Personal Finance page.
