Student debt has become a burden on the millennial generation. The average student loan borrower will owe $38,792 in student loans by graduation, and it exceeds $91,148 for graduate borrowers. Student debt can be overwhelming and risky to one’s life. Students need to understand the seriousness of their decision to go to college and get a degree.
Students need to take into account how their degree will impact their post-college financial situation before they take that next step. While it’s often necessary for students to take out loans to pay the total cost of their education, it is important to consider how you use the money you receive carefully. Mismanaged money could have a profound impact on your life. Here are ten ways student loan debt can negatively affect your life in no particular order.
Ways Student Debt Can Ruin Your Life
Not Going to Graduate School
While graduate education is an expensive investment, it might make the difference between low- to mid-level pay and rub shoulders with the upper crust. For example, according to the National Association of Colleges and Employers, the typical beginning wage for someone with a bachelor’s degree in business administration was a little over $57,000. In comparison, someone with a master of business administration (MBA) can earn approximately $85,000 as an entry-level employee.
You’ll have to do some serious thought if you want to go to graduate school. Consider the potential costs and the likelihood of earning a good living in your field after graduation. Don’t forget to account for your current debt.
The average undergraduate borrows $27,000 in student loans. Students who graduate with undergraduate degrees with high debt are frequently unable to take out another large loan. That means deferring or foregoing graduate school entirely in the worst-case scenario.
Forget Buying a Home
Student loan debt substantially impacts a person’s capacity to buy a property. For example, when Equifax asked millennial renters why they didn’t buy a home in 2015, 55.7 percent said it was because of student loan debt or a lack of savings. So even if you can manage the monthly payments, paying off your student loans could keep you from saving enough for the minimum down payment that many lenders ask.
Living at Home
While some renters are unable to purchase homes, many millennials with student loan debt are unable to rent apartments, particularly in large areas such as New York, Chicago, or Boston.
According to Apartment Guide, the average rent for a one-bedroom apartment in the United States will rise from $1,596 in 2019 to $1,621 in 2020. When you have nearly $30,000 in student loan debt, it can be difficult to pay. In addition, according to a Zillow report issued in May 2019, about 14 million young adults between the ages of 23 and 37 are still living at home with one or both of their parents.
Lowering Your Net Worth
Having a significant amount of student debt might significantly reduce your net worth. According to a Pew Research Center analysis from 2014, there are significant differences between college graduates who have student loan debt and those who do not. For example, a household led by a college graduate under the age of 40 with student loan debt had a median net worth of $8,700. A household headed by a college graduate under the age of 40 with no student loan debt, on the other hand, has a median net worth of $64,700, which is seven times higher.
Put Your Dreams on Hold
Student loan debt has an impact on more than just your financial stability and level of living. It also dictates which dreams you will be able to follow and which will fade into obscurity. You can find yourself abandoning a job that gives you more meaning and fulfillment in exchange for a higher-paying position.
For example, you might aspire to work for a charitable organization. However, you may have to give up that option if you discover that the accompanying wage is insufficient to meet your financial responsibilities. You’ll most likely have to give up these ambitions in order to cover your student loan payments.
A Lower Credit Score
Student loans are treated the same as any other installment loan by the main credit bureaus. Making late payments might have a negative impact on your credit score. You’re in a greater risk group if your credit score is poor. If you wish to buy a car or a house in the future, lenders will be less likely to provide you with credit.
If your credit application is granted, it may also increase the amount of interest you must pay back to the lender. Insurance companies also use credit ratings to set insurance prices, so you’ll suffer a knock there as well.
Student Debt Doesn’t Go Away.
Debt owed on a student loan is distinct from other types of debt. For example, a consumer who can no longer afford automobile payments can return the vehicle to the dealer, and a homeowner who can no longer afford their mortgage payments can return the keys to the bank.
Your student loans are exempt from this rule. There’s nothing left to return by the time you’ve finished repaying your school loans. Whether you used the money for school or not, it was already spent. And don’t even think of declaring bankruptcy. In bankruptcy court, student loans are rarely discharged. However, there is one exception. And then there’s student loan forgiveness, albeit this is a more harder option to come by.
Being Disqualified for a Job
Companies routinely do background checks, which may involve credit checks, particularly if you seek a job in the financial sector. According to a CareerBuilder poll, 72 percent of businesses conduct background checks on new hires, but nearly one-quarter of employers (28 percent) do not. According to the report, 29% of companies did a credit check on prospective hires.
Employment reports can include a criminal background check and a public records search, which can reveal any bankruptcy filings or court documents, in addition to a candidate’s work history. Although employers do not have access to your credit score throughout the vetting process, they can analyze a candidate’s credit report as part of the background check. Therefore, if you are late on your student loan payments, you should expect prospective employers to see this information and use it against you.
Seizure of Your Funds
You may not receive a state or federal tax refund for a long time if you have a federal loan that is more than 270 days past due. This is because if you fail on your loan, the federal government can seize your assets. It can also accept payments from other government agencies, such as Social Security (older relatives who co-sign loans: take note). The government can potentially take up to 15% of your salary to help you pay back your loans.
A Higher Default Rate
When you default on a student loan or any other obligation, you fail to make your payments on schedule. As a result, that loan becomes delinquent once a specific amount of time has passed. Until you make that payment and bring your account current, you will remain in default.
According to Student Loan Hero, over 11.5 percent of student loans are 90 days or more past due or in default. It’s even worse if you drop out of college without earning a degree. “Students who borrow for college but never graduate are three times more likely to default,” according to the US Department of Education.
The Bottom Line
To pay for college, more students are taking out student loans. Before taking out a loan, it’s critical to understand the risks of borrowing money and be self-disciplined enough to borrow what you need. Make thorough arrangements to repay your loans before you borrow, including factoring in the salary you may expect post-graduation for the sectors that interest you.
Americans [of all ages] owe approximately $1.56 trillion in student loan debt, spread out among about 45 million borrowers,” according to Student Loan Hero. That’s nearly $521 billion greater than the total credit card debt in the United States. This is a significantly higher figure than in prior generations. Many of these young adults are unable to leave the nest because they do not earn enough money to repay their college loans while also paying rent.