Many of our clients struggled with student loan debt. Amounts have ranged from small loans of $5,000 up to six-digits in student loan debt. But now only have we helped our clients pay off their student loans, we have our own story of struggling with monthly loan payments before becoming debt free in 2016. Hear about each of our stories and what we believe is the real reason we should all be more worried about student loan debt.
Most people understand how student loans impact their bank account. But we view your personal finances through a holistic lens. In our podcast and in our Financial Coaching, we focus on the true cost of burdensome student loan debt. Meaning the impact it has on your overall well being, not just your finances.
Because while it’s easy to look at your debt as strictly impacting your finances, the effects on your life as a whole are far more significant. So much that the impact this debt has on your well being is currently being studied. As the burden of student loan debt increases, so too does the need for understanding the connection between our finances and the rest of our life. Yet most of the advice and information you find reduces the issue down to dollars and cents, not how it’s impacting the other areas of our lives.
The Reality of Student Loans After Graduation
When we go to school and make the decision to take out student loans based on the rationall that we will pay it off in ten-years. But at 18-years old we don’t understand exactly what we’re getting into. Once we are out of school, the harsh reality hits as we start to pay back these loans.
Conventional Advice about Student Loans
For a lot of us with student loans debt, conversations with parents and academic advisors seem to have been very similar.
We were advised that getting student loans was acceptable and a safe investment. Traditional thought says after graduation you will get a good job and be able to pay the student loans off, without a problem.
But what about when you do not finish your degree? What happens if you were unsure about your career path and got a degree you’re not benefiting from?
Going Into Student Loan Debt – for a Degree You Didn’t Use
The unfortunate reality is that unless you study in a specialized field with a specific career path, it’s difficult to know the return on the investment of your degree. Without being able to realistically estimate your future salary, it is challenging to determine if you will be able to make payments on your student loans. This is one reason why we believe income based repayment is so common.
In addition, when you choose a degree without a clear profession in mind, it’s difficult to figure out your career path.
For us this meant spending a few years after college, ruling things out. While trying to find our professions, we took jobs we knew we would quit, just so we could pay off the student loans we weren’t using.
When Your Student Loan Payment Grace Period Ends
Approximately 6-months after graduation, the student loan grace period ends and you have to start making your monthly payments, unless you defer.
Most people, ourselves included, receive little advice about how to pay off their student loans. The most common advice we got was to “pay more than the minimum payment each month” or look into programs like PSLF (Public Service Loan Forgiveness) or income based repayment plans.
Of course this advice is incomplete and each option has its own set of issues and limitations on how helpful they are to your overall financial wellbeing.
How Student Loans Hold Borrowers (You) Back
It is easy to see and understand the financial implications of having large amounts of student loan debt. High monthly loan payments paying for the past, make it impossible to build your future. However, what is less discussed or understood are the other ways in which student loans hold borrowers back.
If you have student loan debt for a degree you never received or are not using – you probably feel like the system is rigged. This is something we hear a lot, and that we experienced ourselves. This is one reason why a lot of people choose not to aggressively pay off their student loan debt. How can you be motivated, when you feel like you were set up to fail? When you feel like the system you bought into and trusted, failed you.
This mindset makes it difficult to get motivated to pay the loans back. It also makes programs like income based repayment seem like a good idea.
The Emotional Toll
The emotional toll of student loan debt is far more harmful than once believed. negative emotions such as shame and regret are like poison and lead to feelings of hopelessness, making it difficult to feel like you can move forward.
This emotional impact can affect how you manage your money. The burden, fear and stress caused by your student loan debt, actually influences your spending habits.
Not only does it affect your finances but it also affects your health, due to the negative consequences of chronic stress. If left unaddressed, the problems will only get worse.
Student Loan Debt and your Mental Health
Financial stress of student loan debt strongly impacts your mental health. Leading to higher levels of stress, anxiety, insomnia and even depression!
In addition to that, the financial stress you are experiencing, actually makes it more difficult to make well informed financial decisions.
Delaying Life Milestones
Many student loan borrowers surveyed have reported that they are delaying life milestones due to their student loan debt. Feeling as though they cannot afford to date or get married, much less become first time home-owners.
Lower Net Worth
In another survey, J.P. Morgan Chase found that those with student loan debt had much lower net worth than those without. While this may seem obvious, it is important to look at the issue holistically.
Benefits of Paying Off Your Student Loans
Now that you have an understanding of the true cost student loans have on your life. Here are some of the most powerful reasons to pay off your student loans ASAP!
Money Management Skills
The process of eliminating your debt will make you better at managing your money!
In order to pay off your student loans effectively (much less early) you need to be a master at budgeting, managing your cash flow and more! These skills will do far more than help you reach your goal of being free from student loan debt.
These skills are transferable and will help you reach your next financial goal such as saving an Emergency Fund, investing and more. Whatever it is, you’ll be able to reach it faster once you’ve mastered money management.
Invest and Save More Money
Investing and Saving becomes much easier when you no longer have a monthly payment of $300+ to your student loans each month!
In our opinion, this benefit is overlooked. But the sooner you free up cash flow, the sooner you get to make higher monthly contributions to your investments. What that means is you will reach Financial Independence faster now that you don’t have all those monthly payments to make.
Increased Self Confidence
Paying off your debt and taking your financial future into your own hands, increases self confidence!
By taking control of your financial situation and moving toward Financial Freedom, you prove to yourself that when you set your mind to something – you will accomplish it. This not only improves your confidence in your ability to manage money. It also increases your confidence in yourself! By following through on your plan and reaching your goal, you show up for yourself. It is proof that you can do hard things, and that has a positive impact on how you view yourself.
Freedom from Negative Emotions
As mentioned, student loans come with plenty of negative emotions. By paying off your debt, you can let go of negative emotions you may have been holding on to.
If in the past you have beat yourself up for getting into debt, you now create space to forgive your past self and move on. If you harbor resentment, guilt, shame etc. now you get to let go and leave it in the past.
When you do this, it gets easier to look back at your college experience with new eyes. Something that simply is not possible until your student loan debts are all paid off.
In our experience, you don’t have to be debt free to get immediate results. Just by putting together an actionable plan for paying off your debt, stress levels decrease. You start to see the light at the end of the tunnel. And over time your mental, emotional and physical health will all continue to improve.
Time to Take Action
With all of this information in hand, we hope that you now see the true cost of student loan debt and the importance of financial wellness. While it is easy to see that student loan reform is greatly needed, we want to encourage you not to wait. Take control of your life and your financial future. Create a plan to pay off your debts and start taking steps toward financial freedom, today!
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This blog is based on an episode of the radmoney podcast on the same topic. Catch up on recent episodes of the radmoney finance podcast and make sure you never miss an episode by subscribing on Spotify – Apple or wherever you listen to podcasts!