A college degree is often seen as a ticket to a better life. However, paying the price of college can be challenging. Many students need loans (both federal and private) to cover their expenses. The cost of these loans is more than just financial, as many student loan borrowers say that their educational debt has affected their ability to reach their financial and life goals.
How student loan debt can affect financial milestones
According to the College Board, 55% of graduates of four-year nonprofit public and private colleges and universities who graduated in 2019-20 had student loans. Those with student loans may be delaying important financial and life milestones due to the fact that they also need to take care of their educational debt.
Earlier this year, CNBC released the results of a survey showing that 81% of respondents were late on financial milestones due to student loan debt. Milestones that respondents indicated they had not reached include:
- Invest money (40%);
- Saving for retirement (38%);
- Buying a house (33%);
- Having a child (16%);
- Get married (14%).
Listing Source: Investopedia.
Other data also suggest that student loans are hurting the housing market. According to a study published by the Federal Reserve, every 10% increase in student loan debt from 1997 to 2010 resulted in a 1 to 2 percentage point reduction in home ownership rates for borrowers in the first five years after termination from school.
The financial future of student borrowers is also often less secure than that of non-borrowers. Using data from the 1997 National Longitudinal Survey of Youth Cohort, the Boston College Retirement Research Center found that those with student loans had about half the retirement credit of those who graduated without student loan debt.
Is the student loan worth it?
After considering how student loans can affect a borrower’s life, it’s not surprising that the CNBC survey found that 54% of adults with student loans said they weren’t worth the cost.
The impact was even greater for borrowers who earn less money. Among those earning less than $50,000 a year, 61% of respondents said college debt wasn’t worth it. In groups that made more money, however, student loans were more likely to be worth the cost.
For example, 54% of borrowers earning $50,000 to $99,999 annually said their student loans weren’t worth it, while 59% of borrowers earning more than $100,000 think their student loans are worth taking on.
Less debt means more varieties or options
Ultimately, being able to finish school with less student loan debt gives borrowers more options. Data from the United States Census Bureau indicates that racial and gender disparities still exist in those who have student loan debt.
One of the reasons President Biden gave for his student loan forgiveness plan (which is currently on hold) was that it could unlock the economic potential of millions of borrowers to start businesses, buy homes and get on with their lives.
On the other hand, those who feel overwhelmed by student loans are more likely to believe they have fewer options and feel trapped.