Student loan debt has reached unprecedented levels in America, surpassing $1.7 trillion owed.1
To put that into perspective, this staggering figure is more than the GDP of many countries. It's an issue that not only affects students in the long run but also has far-reaching implications for their day-to-day lives.2
As higher education administrators, it's crucial to comprehend the magnitude of the problem and its potential impact on your students, both financially and emotionally.
Students who have taken out loans to pay for their education often face daunting repayment plans that extend over decades. The financial burden of this debt can be overwhelming, leading to delayed milestones, limited lifestyle choices, and diminished savings.3
As administrators, it's important to understand the significant impact that student loan debt can have on students, both financially and emotionally. Then you can see how to improve financial education and help to alleviate the pressure of student loan debt for our students.
Below we will outline six major ways in which student loan debt is affecting your college students' day-to-day lives.
1. Build a Savings
The accumulation of student loan debt can severely limit a student's ability to save money.
The majority of borrowers are putting away less than one-tenth of their income each month, with many saving nothing at all. This lack of savings can result in delayed 401(k) contributions, a lack of a rainy day fund, and can lead to maxing out credit cards for emergency expenses.4
2. Limited Lifestyle
The financial burden of student loan debt has also been shown to lead to a limited lifestyle.
A TD Bank survey found that 60% of student loan borrowers don't take vacations, 36% delay becoming homeowners, 35% rarely dine out, and 26% delay having children.5
These delayed milestones can result in frustration and disappointment for graduates, affecting their mental health, emotional resilience, and well-being.
3. Purchase Necessities
Student loan debt also has a serious effect on the ability to purchase necessities such as housing and transportation.
With a fifth of take-home pay going towards student loan repayment, many borrowers struggle to afford basic living expenses, including rent, car payments, and even groceries.6
This financial burden not only affects students day to day life but also takes a toll on their physical health.
4. Delayed Career Choices
When it comes to career choices, many graduates feel the weight of their student loan debt bearing down on them.
The burden of debt repayment often leads to prioritizing job offers that offer a higher salary, over positions that align with their passions and interests. In this scenario, the pressure to earn more money in order to pay off student loans can lead to a lack of fulfillment and decreased job satisfaction.7
Many graduates also feel compelled to accept a job with more rigid working hours or less vacation time to pay off their debt more quickly. This can lead to a work-life balance that is skewed towards work, leaving little time for leisure activities, hobbies, or time with friends and family.7
A lack of work-life balance can lead to higher levels of stress, burnout, and a negative impact on mental health.
5. Kills Entrepreneurship
Entrepreneurship is a significant driver of economic growth and innovation in society. Many successful entrepreneurs started their ventures while they were still in college or soon after graduation.
However, student loan debt can be a significant barrier to entrepreneurship, as it limits the financial flexibility and stability that is often needed to start a new business.
Graduates with student loan debt may feel hesitant to take on the additional financial risk of starting a new business. The financial pressure of debt repayment may make them more risk-averse, as they may be unwilling to risk their financial stability and security in pursuit of their entrepreneurial goals.8
6. Credit Score
The impact of student loan debt on a student’s credit score cannot be overstated.
Late or missed payments can severely damage credit scores, making it difficult to obtain loans, credit cards, and even rental agreements in the future.
On top of this, if a graduate defaults on their student loans, it can have long-term negative effects on their credit score, making it challenging to secure financing for significant purchases such as a home or car.6
A damaged credit score can also have far-reaching implications on a student's overall financial stability, making it challenging to secure employment, obtain affordable insurance rates, or even obtain security clearances for certain jobs.6
How You Can Help
As administrators, it's important to help alleviate the stress and pressure of student loan debt for your college students.
Offering financial literacy programs and resources for loan repayment can make a significant impact on their lives.
Additionally, alternative funding sources such as scholarships, grants, and work-study programs can help reduce the amount of debt that students must take on.
As you can see, student loan debt is a critical issue that impacts not just graduates but also their day-to-day lives. It limits their ability to save money, pursue their dreams, and achieve long-term financial stability.
As higher education administrators, it's essential to understand the impact of student loan debt on your students and offer solutions to help them alleviate this burden.
With tools like financial literacy programs, alternative funding sources, and loan repayment resources, you can help your students build brighter futures and achieve their goals.
iGrad is one of the best resources that can help you provide financial wellness education, tools, and resources to your students. iGrad offers a range of financial literacy programs that can be tailored specifically to the needs of your students and includes financial coaching, financial education, and financial tracking and reporting tools.
1 - https://www.forbes.com/sites/zackfriedman/2022/05/16/student-loan-debt-statistics-in-2022-a-record-17-trillion/?sh=100b8fb74d5a
2 - https://www.worldometers.info/gdp/gdp-by-country/
3 - https://www.npr.org/2022/06/05/1103145061/college-debt-is-one-of-the-largest-financial-burdens-young-people-face-today
4 - https://www.cnbc.com/2017/09/14/how-much-money-the-average-millennial-has-in-savings.html
5 - https://stories.td.com/us/en/article/td-bank-survey-finds-americans-spend-more-than-20-of-their-take-home-pay-on-student-loan-debt-impacting-their-long-term-financial-health
6 - https://www.newyorkfed.org/microeconomics/hhdc.html
7 - https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr724.pdf
8 - https://www.forbes.com/sites/forbesbusinesscouncil/2022/04/28/how-student-loan-debt-impacts-entrepreneurship-according-to-business-leaders/