7 Ways Student Debt Can Ruin Your Life
The class of 2015 has the fortune of entering the best job market college grads have seen in close to a decade. They also have the misfortune of being the most indebted class in American history.
The pile of debt that students are taking on every year has swelled to such a size that it has become impossible to ignore. At this point, the idea that college should not set one up to live a life saddled with debt is evolving into a significant bipartisan 2016 policy issue. Bernie Sanders has made waves by introducing legislation designed to make public colleges free.
But until politicians pay anything more than lip service to resolving the debt crisis, more and more people will join the ranks of grads tethered to the $1.2 trillion mountain of student loans. There will be consequences. Student debt can taint everything from one's professional options to the ability to make critical financial investments. Here are some of the main ways in which student debt can negatively affect borrowers' lives.
It can narrow your career prospects.
Student debt incentivizes borrowers to shun less lucrative professions. One 2007 paper published by professors at the University of California, Berkeley, and Princeton University found that student debt shrinks the probability that students choose "low-paid 'public interest' jobs." When the prospect of years of paying off loans enters the equation, factors like personal fulfillment and social value fade swiftly.
It can result in the government withholding your pay.
If you fail to keep up with your student loan payments, the federal government can collect them by withholding up to 15% of your disposable pay. It can also seize your entire income tax refund. These kinds of interventions can only happen after you've defaulted on your loans — which means you're between 270 and 330 days late on payments. In 2014, close to 14% of student loan borrowers in the first three years of repayment were in default.
It can cost you your job.
In 21 states, it's possible to have your professional license revoked for defaulting on your student loans, according to Jobs With Justice. Certain trades that require licensing like nursing and teaching are particularly vulnerable to being targeted by these laws. In two states, it can also result in the suspension of your driver's license.
It can make it harder for you to buy a house.
Student debt can make borrowers less able or willing to buy a home. The Federal Reserve Bank of New York has released analyses that tie the rise in student debt to a decline in homeownership.
Historically, at age 30, student loan borrowers are more likely to have a mortgage on a home than non-borrowers, since they are more likely to be more educated and have a higher income. But that dynamic has shifted: Now 30-year-olds with no student loans are more likely to have a mortgage.
While there's a debate over what explains the new trend, researchers at the New York Fed suspect that higher rates of student debt have a causal relationship with the reduction in home ownership rates due to high monthly costs and delinquency rates among student loan borrowers, which can affect everything from the ability to make a down payment to qualifying for a mortgage.
It can throw a wrench in your dreams of starting a business.
Higher loan payments can discourage and limit people's ability to start their own businesses. In his testimony before Congress, Rohit Chopra, the U.S. Consumer Financial Protection Bureau's student loan ombudsman, reported that "preliminary research on student debt and small business formation finds a 'significant and economically meaningful negative correlation between changes in student loan debt and net business formation' for small businesses."
It's almost impossible to get rid of it.
It is much, much more difficult to discharge student loans through bankruptcy than credit cards or mortgages or other forms of debt. Indeed, the laws regarding extricating one's self from debts make it so that it's easier for a formerly wealthy business owner who suffers misfortune to discharge their favorite yacht than it is for a destitute college grad to have most of their student loans forgiven. For this reason, educational degrees constitute a uniquely risky kind of investment.
"Student loan debt is different from other types of debt, because people have already received the service, and they can't sell it for anything," Alexander Holt, a policy analyst at the New America Foundation's education policy program, told Mic. "So if they're in a situation where they can't pay it back, it's not like they can sell the diploma."
If you're a person of color, it affects you differently.
Mark Huelsman, a senior policy analyst at the think tank Demos, recently published a report illustrating how having to borrow large amounts of money in order to finance college education exacerbates racial inequality. Students of color tend to borrow more, and more often, than white students. In the chart below, you can see that while 72% of white students borrow for private colleges, 86% of black students and 87% of Hispanic students have to borrow to pay for private colleges.
These debt disparities make students of color more vulnerable to every other issue in this article, and they tend to disproportionately reduce the job satisfaction that college grads of color feel as they make their first forays into the workforce.
The many burdens and perils of student debt don't negate the value of college degrees, which still reliably boost earnings for their recipients and open up a wide variety of career options. But they should cause us to re-evaluate the high cost of allowing education to drift further and further from public good to commodity.
Correction: May 28, 2015
