How does university debt affect future life choices of students?
A combined total of $1 trillion USD in debt, that’s what consumers under the age of 30 owe, as of 2018, according to a report from the New York Federal Reserve Consumer Credit Panel. It’s usually necessary to take out a student loan when heading off to university, due in part, to the extortionate tuition fees they ask of you (depending on where you live and what kind of university you choose, they can cost up to $50,000 a year).
As with loans, you can of course get someone to co-sign your student loan, however this means that should the debtor not be able to pay it back, the co-signer is then held responsible.
So then, when taking out student loans you need to carefully consider how to use the money wisely and effectively.
Student loan debt can have a astronomical effect on your life. It can hinder your ability to seek education higher than university level, for example a masters or PHD level qualification. Often trying to pay back student loans means that the student simply cannot borrow any more money to pay for more education, and thus could become stuck trying to pay back debt whilst not being able to achieve their educational goals.
Having significant amounts of debt can hinder you in ways other than your studying choices, it could also impact where you live. You may find yourself moving away from home to somewhere with a more affordable cost of living, or in fact find yourself not being able to move out of the family home at all, whilst you pay back your debt and attempt to save money for a deposit to move out. In 2015, Equifax asked a group of millenial renters why they had not bought a home “55.7% of respondents listed “student loan debt/not enough money saved” as the top reason they were not able to purchase a home.” That’s over half of the group which is outrageous.
Zillow also ran a similar analysis in May 2019; which concluded that roughly 14 million young adults between the ages of 23 and 37, are still living at home, a much larger number than in previous generations.
This could in turn, lower your net worth. In 2014, a report from the Pew Research Center studied this, in fact, the results are astonishing. They found that the median net worth of a household headed by a graduate with student debts was a staggeringly low $8,700. When compared with households headed by college graduates without student debts, which was a whopping $56,000 higher, at $64,700.
Not only does student debt often force people to give up their educational goals, it can force their hand when it comes to career goals. By this I mean, often college graduates go for a higher paying job, that they might not particularly enjoy, over something they really want to do in order to be able to afford to pay back their debts.
Of course, career and educational goals aren’t the only thing that student debt can affect; if payments are made late, it can greatly effect your credit score. Sounds like no big deal right? But for the grad still living at home, working a job they don’t like to afford to pay back their debts and save for a deposit at the same time, it can cause issues when it comes time to move out. Mortgage brokers aren’t going to want to sell a house to someone with a bad credit score, especially when it’s related to paying back debts late.
Or perhaps you need a car to get to and from the new job you got offered so you can start paying back your debt, but you can’t get a car because no-one will lease you one due to your credit score. If you can get a car, insuring it might be tricky, since insurance agencies often look at credit scores when determining their rates. It’s a vicious circle, and sometimes not one that’s too easy to jump out of, and this is providing you get a job.
Companies often do background checks on their applicants which in this day and age, can include credit checks. Having a low credit score due to loan debt can actually disqualify you from certain jobs. According to an article by CNN in 2013, “One in four unemployed Americans have been required to go through a credit check when applying for a job, and one in ten have been denied jobs due to information in their credit report, according to a survey by liberal think-tank Demos of about 1,000 low- and middle-income households with credit card debt”. It often has a domino effect, too, with health insurance being lost because of not being able to keep up with payments, leaving those already struggling, in an even deeper black hole.
Minorities are also even more so negatively affected by employer credit checks, “On average, African-American and Latino households have worse credit scores than white households. Demos said this can be partly attributed to higher unemployment in these communities. Unemployment among African-Americans stood at 14% at the end of 2012, while the Hispanic unemployment rate stood at nearly 10% — much higher than the 6% rate for white Americans, according to the Economic Policy Institute.”
If your loan is defaulted by more than 270 days, the feds can actually seize your tax return funds, meaning you might not get a state or federal tax return for a while. They can also take other types of government payments, such as social security payments; co-signer’s should remember this. They can also garnish (garnishment, or wage garnishment, is when money is legally withheld from your paycheck and sent to another party. It refers to a legal process that instructs a third party to deduct payments directly from a debtor’s wage or bank account —https://www.investopedia.com/terms/g/garnishment.asp) up to 15% of your income.
The National Center for Education says that those who borrow money for college but never actually graduate are also three times more likely to default on their payments, presumably because they aren’t working in the field they planned to once they got their degree.
All this might have you thinking “whats the point in even going to college?” and while it’s easy to think like that, debt isn’t the be all and end all of your life if you do decide to go to college. College can open up many, many doors that you might not have had the key for if you hadn’t gone to college. The best thing to do is have a plan in place. Work out just how much money you need to take out for college, and don’t take more than you need. Look at the careers you are interested in working in and the salary expectations for them, and work out how you will repay your debts upon graduation. You can also see if you can have your debts forgiven, whats the harm in trying?
