A 2019 study from Prudential Financial on paying for college looks beyond the numbers to find out how student loan debt is actually affecting students and graduates in their daily lives. The findings are insightful, troubling, and encouraging.
Troubling, because student loan debt for many graduates has become a profound source of both financial and emotional stress, compromising their ability to establish families and households, save adequately for retirement, and protect themselves against unexpected life events. It is insightful, in that conservative opinion suggests borrowers walk into loans intending to default, while the reality shows many simply are unable to establish adequate income to consistently make payments. Finally, the research proves encouraging because student borrowers are now more inclined to seek guidance before committing to loans.
Beryl Plummer, a graduate student at American University, told the Informer that had she been privileged to a greater understanding of how student loans worked – who her lenders were and what was expected of her upon graduation, she would never have assumed as much debt as she did.
“Financial planning should start in the crib and so whether it is a credit card, car financing, or student loan, we have to be better about how we will manage the repayments,” Plummer said. “I borrowed more than I needed to ensure I did not have to get a job while in school. I wanted the freedom of being a full-time student and finishing the program in three and half years. That extra loan money with its accrued finances, fees, and interest put me in a chokehold once I graduated that I have not been able to loosen.”
Plummer said that though she stopped lamenting that loans “were the devil,” she has come to terms with the fact that she, like many others, refused the delayed gratification of working through school to negate the need for student loans – and that she didn’t really consider how the debt would impact her overall wellbeing.
“I had collectors calling my home and my job because I could not make the payments in the amounts initially discussed. I developed headaches, acid reflux, insomnia, and an overwhelming fear that the education was not worth it,” said Plummer, whose entry-level position as a legal assistant did not pay enough to live comfortably. “I was drowning in debt and my credit score was being impaled by my lack of understanding.”
Eventually, Plummer moved back home with her parents, traded her car in for a SmartTripcard, and spent three years paying the debt off. She said the reward was in regaining her mental and emotional health – as well as keeping her poor loan decisions from snowballing.
“Loans are a legal obligation. When you sign on the dotted line, you have agreed to repay the money you’re given. In hindsight, I would have either borrowed less, or not borrowed at all. I learned a valuable lesson and I live stress and debt-free now.”
Prudential assembled within its study a section of “lessons learned.” The series of action plans, outlined in its report, Student Loan Debt: Implications on Financial and Emotional Wellness, offer options for smarter choices about paying for college and minimizing the negative impact of any student loan debt they do assume. The advice, while fitted to student loans, applies to all loans and should be utilized to gauge financial readiness for repayment.
Students and graduates now question whether student loan debt is a good deal. Among the more than 1,100 surveyed college graduates who had taken out student loans to help pay for their post–secondary education, only about four in 10 now say borrowing that money proved to be worthwhile, and only one in four now calls college debt “good debt.”
Repayment struggles leave many borrowers afraid they’ll never right themselves financially. Among graduates who borrowed to attend college and are still paying on their loans, a stunning 53 percent fear they will never dig themselves out of debt. Loan default rates help to explain their shifting views.
Nearly half of college graduates who are still paying on their student loans—44 percent—say their loans have been in deferral or forbearance at some point in time, as do 16 percent of graduates who have paid off their student loan balances. At first blush, these figures don’t appear to square with data from the Federal Reserve Bank of New York, which reports that 11.2 percent of aggregate student loan debt was 90 or more days delinquent or in default in the fourth quarter of 2016.