Millions of Americans pursue college degrees in the hopes of creating a bright future for themselves. The goal is that after graduation, you’ll be gainfully employed and working toward a career that is both fulfilling and allows you to pay back your debts.
But as the cost of tuition across the country continues to skyrocket , the rosy picture of college allowing students to prosper after graduation may not be entirely accurate.
As a nation, we’re just beginning to understand how student loans affect the economy , and importantly—the lives of those holding the outstanding student debt.
America’s Student Debt Crisis
To understand how impactful the student loan debt crisis is, let’s put it into perspective. Consumer debt in the United States is measured by the Federal Reserve in five distinct categories—home, auto, credit card, student, and other debt.
Student loan debt was the smallest consumer debt category in 2003, at just 3.1% of the country’s total consumer debt. Fast forward 12 years to 2015 and student loan debt became the second largest category, accounting for 10.4% of the nation’s consumer debt. Since then household debt has continued to rise, with student loans accounting for 42% of all consumer debt in 2018.
How Does Student Loan Debt Affect Borrower’s Life Decisions
Given the demands of student loan debt, borrowers are delaying big life decisions. Things like buying a home or starting a family are happening later in life, for some, thanks to student loans and the financial implications they come with. Here are some of the areas affected by student loan debt:
Buying a Home
A 2017 study from the Federal Reserve Bank of New York found that while tuition has continued to rise , the increasing cost has not prevented students from pursuing higher education. Instead, students have accommodated the increasing tuition by taking on more debt to earn their degrees.
The study found that while rising tuition and debt accumulation had no impact on college enrollment or B.A. attainment rates, they did impact homeownership among millennials.
Researchers found that between 11% to 35% of the decrease in homeownership among 28 to 30-year-olds between the years of 2007 and 2015 could be attributed to tuition hikes and rising student debt. According to The New York Times, “homeownership among Americans in their 20s and 30s in 2018 is hovering near a three-decade low .”
The growing student debt impacts borrowers’ ability to buy a home in a few ways. When you apply for a mortgage, creditors look at your debt-to-income ratio, which is what you owe against how much you make. Nearly one-fifth of those who apply for a mortgage aren’t approved due to their debt-to-income ratio.
Another factor is your credit score. If you’ve missed payments on your loan or if the loan is delinquent or you’ve defaulted, your credit score could have been negatively impacted.
Possibly the biggest hurdle to homeownership when you hold student loans is saving for the down payment. Of those carrying student loan debt, 85% say that difficulty in saving has delayed their ability to buy a house.
Not only can student loan debt delay homeownership, it also can make it more likely that you will live with your parents after graduation.
Marriage (and Divorce)
Homeownership isn’t the only thing being delayed as a result of student loans. According to the Federal Reserve , one of the effects of student loan debt is borrowers delaying decisions about marriage and starting a family. A Consumer Reports survey found that 12% of respondents delayed getting married due to student debt.
Marriage can impact your student loan payments, depending on the types of loans you have and the repayment plan you are on. If you are on an income-based repayment plan, your monthly bill might change based on how much you and your spouse earn and how you file your taxes.
Starting your life together in debt can add stress to a marriage. In some cases, the financial stress of student loans led borrowers to divorce. A survey from Student Loan Hero found that 13% of respondents attribute student loan debt as a cause of their divorce. In addition, couples with student loan debt were more likely to delay divorce due to their student loans.
Starting a Family
In 2018, the fertility rate reached a record low. That same year, The New York Times conducted a survey in an attempt to discover why people are having fewer children.
The survey found that 64% delayed having children because child care was too expensive and 43% waited to have children due to financial instability. Of the people that didn’t plan to have children at all, 13% said it was as a result of student debt.
For women, having children can have a serious impact on their career and income. While there are a number of reasons Americans are having fewer children, student debt is becoming an increasingly impactful factor when it comes to deciding to delay starting a family. Especially when you consider that women hold more student loan debt than men and will earn less over their careers.
Pursuing Graduate School
If you have undergraduate student loan debt, you’re less likely to enroll in a graduate or professional degree program. Graduate school often means even more debt. The median debt for graduate students is $57,600 and one in four borrowers owes $100,000 or more, according to the New America Foundation .
An advanced degree can mean increased job opportunity, but it’s important to determine if taking out the debt is worth it when compared with your anticipated earning potential.
Saving for Retirement
One of the negative effects of debt on young adults is that their retirement savings can be impacted. According to a 2018 study by the Center for Retirement Research at Boston College , Millennials who never borrowed student loans saved twice as much for retirement by age 30 as college graduates who have student debt.
College graduates without debt at age 30 had saved approximately $18,200 for retirement as compared to just $9,100 for 30-year-olds with an average loan balance of $16,230.
The study also found that the actual amount of student loan debt alone wasn’t a factor in holding them back from saving for retirement. Instead, it found that any debt at all held borrowers back from saving.
Delaying retirement savings can mean playing catch up in your later years. Typically, the earlier you start saving for retirement, the more time your money will have to benefit from compound interest.
It can seem overwhelming to start saving for retirement while you’re still paying off student loan debt, but doing both at the same time can help you meet your financial goals in the future.
Managing Your Student Loans and Living Your Life
Student loans can impact almost every area of your life. But you don’t have to let student debt drag you down forever. There are alternate solutions that can help you manage your debt so you can work toward repayment. One option is student loan refinancing.
When you refinance your loans you take out a new loan with a private lender. Depending on your credit history and financial profile, you can qualify for a lower interest rate, which could substantially lower the amount of money you pay in interest over the life of the loan (depending on the term you select, of course).
At SoFi, you can refinance both private and federal student loans. If you’re enrolled in an income-based repayment plan or are working toward Public Service Loan Forgiveness, refinancing may not be for you, since you’ll no longer be eligible for those programs and other federal student loan protections.
But if you’re currently paying off a variety of loans with different loan servicers, refinancing could allow you to simplify your repayment plan, resulting in one monthly payment.
When you refinance with SoFi there are no origination fees or prepayment penalties. As a SoFi Member, you’ll have access to benefits including career counseling and unemployment protection, which could allow you to temporarily pause your student loan payments in the event that you lose your job through no fault of your own. To see how refinancing could help you manage your student loans, take a look at our student loan refinance calculator.
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SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.