Over half of American college graduates are graduating with some student loan debt, with borrowers owing a total of $1.57 trillion, according to the Federal Reserve. For many of these borrowers, the burden of repaying those loans affects their immediate and long-term financial situation. Many student loan borrowers delay major life milestones and are behind on retirement savings.
To find out just how much the student loan debt crisis is affecting borrowers’ lives, TD Bank surveyed over 1,000 Americans ages 18 to 39 who have paid off or are currently paying off debt from student loans — and the findings are alarming. Although Americans are clearly struggling with student loan debt, there are options with your payment plans and budgeting that might help you get your money in order.
Last updated: Sept. 9, 2021
Most Borrowers Are Using One-Fifth of Their Income for Loan Repayment
The average student loan debt held by borrowers is $26,495, and the average monthly debt payment is $579, according to the TD Bank survey.
“With a reported average monthly take-home pay of $2,689, one-in-five dollars of take-home pay is spent on repaying student debt,” a press release on the data stated.
Student Loan Debt Affects Americans for Years After Graduating
Most Americans with student loans — 61% — plan to need four years or more after graduation to pay back their college debt. And 24% expect to need 10 years or more to pay off student loans.
These findings indicate “that loan holders’ paychecks will be impacted for years to come,” the survey concluded.
Student Loans Are Making It Difficult for Many Americans To Save
Because most Americans with student loans are putting a significant amount of their paycheck toward debt repayment, they are finding it hard to save. The TD Bank survey found that 61% are saving 10% or less of their income per month — and 20% are not saving anything.
Many Millennials With Student Loans Don’t Have an Emergency Fund
The survey also found that 43% of millennials with loans have delayed putting money aside in a rainy day fund. Not having a rainy day fund can ultimately end up costing them more — in many ways.
Not Having an Emergency Fund Can Put Americans Further Into Debt
Not having any savings in a rainy day or emergency fund can cause major financial issues if an unexpected expense pops up.
“In the short-term of forgoing savings, whether you’re a homeowner or not, there are unexpected things that happen in people’s lives — whether it be with their car or an emergency hospital visit — things that you need to pay for,” said Mike Kinane, head of US Bankcard at TD Bank. “And making sure that you have some level of a cushion to help weather those unexpected events is extremely important.”
“Especially with student debt, you’re trying to juggle a monthly debt burden on top of a car loan and rent and other things, and then this bump in the road could cause you to miss a payment or two,” he added. “That can cause even further damage to people’s credit and their credit history.”
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Student Loan Debt Makes Americans Rely More on Credit Cards for Everyday Expenses
The TD Bank survey found that 54% of respondents have maxed-out credit lines. This means they’re adding credit card debt on top of their student loan debt, and it can be hard to know how to prioritize paying off these debts concurrently.
Credit Card Debt Should Be Prioritized Over Student Loan Debt
Although it’s important to keep up with student loan payments, Americans with student loan debt and credit card debt should prioritize paying down their credit card debt first, said Kinane.
“Typically, credit cards are going to be a higher-interest-rate debt, [so those are] the balances that consumers should think about first paying down,” he said. “Typically, what you’re seeing with student lending, they’re usually going to be lower interest rates — the ranges are in the single digits.”
“For credit card debt, if you’re paying the full rate APRs, those are typically in the teens or higher,” he added. “I think it’s important to focus on that higher-interest-rate debt and paying that down as aggressively as one can.”
Americans With Student Loan Debt Miss Out on Everyday Pleasures
Life experiences that you might take for granted aren’t affordable for some Americans with student loan debt. The survey found that 35% of respondents dine out less often, 60% don’t take vacations and 20% haven’t joined a gym.
Young Americans Delay Major Life Milestones Because of Student Loan Debt
The survey found that many millennials delay life milestones because they can’t afford them while paying back student loans. Over a third (36%) have delayed buying a home, 21% have delayed getting married and 26% have delayed having kids.
Many Young Americans With Debt Aren’t Saving For Retirement
Many millennials with student loan debt are failing to invest in their financial future. Forty-one percent said they’ve delayed contributing to a 401(k) plan and 42% said they’ve delayed contributing to other investments.
Why Delaying Retirement Savings Is a Mistake
Retirement seems far off to people in their 20s and 30s, but saving now for long-term financial health should be a priority at these ages.
“401(k) contributions are some of the most important investments that a young person can make, even though they may not realize it at the time that they’re making them, because of the ability of those dollars to grow tax-free over a very long period of time,” said Kinane. “Young people with student debt are thinking only about today, and I understand why that is, but they’re thinking about that instead of the long-term benefits of investing — even a very small amount.”
Kinane said that contributing just $10 a paycheck to a 401(k) or another retirement account can make a big difference over time.
“If you do that when you’re 22, 23, 24 years old, even $10 a paycheck starts to add up over a 30- to 40-year career,” he said. “Start out small with the intent that as you get a raise, as your lifestyle changes, as you’re able to pay off your student debt, you can increase that investment — but just getting on the train is the most important first step.”
Nearly Half of Americans With Student Loan Debt Wish They Had Made Different Choices
Forty-six percent of those surveyed said they would not have made the same decisions about their education and borrowing if given the chance to do it over. Of those who regret their student loan decisions, 15% said they would choose a less expensive school, 20% said they would have taken out fewer loans and figured out other ways to pay, and 11% said they would not have taken out any loans at all.
Americans Should Be Educating Themselves Before Taking Out Student Loans
Kinane believes that the fact that so many Americans have regrets about their student loan situation indicates that there’s a major issue with financial literacy around this topic.
“What was surprising to me was the lack of understanding of what the student debt is at the time [borrowers] are acquiring the debt,” he said. “A lot of students really didn’t understand what they were signing, what the interest rate was, what they would have to repay [and] when they would have to repay it.”
“Education when you’re actually at the table and needing to finance the next year, that’s a piece that I really encourage students to pay attention to,” he added. “[They should] lean on their network of friends and family that may have done this before, and go to banks and student lenders and really try to educate themselves on what their products are.”
What To Do If You’re Struggling With Student Loan Debt
Unfortunately, many people are already struggling with student loans, and it’s too late to go back in time to do things differently. However, there are steps student loan borrowers can take to safeguard their financial future and lessen their burden.
1. Make the Minimum Monthly Payment Every Month, and Make It on Time
“Make sure you’re focused on making the minimum monthly payment,” said Kinane. “Focusing on making sure that those payments are made on time is really important because if you don’t, not only do you get late fees that could add to your debt, but you’re also creating a situation where your credit report is not going to look great.”
A lower credit score could make it harder to qualify for credit cards and could make you a less attractive homebuyer to prospective lenders. You might have to pay higher interest rates, or you might not get approved at all, Kinane said.
2. Separate Discretionary and Nondiscretionary Spending
“Make sure you’re very careful about how you’re applying your paycheck,” said Kinane. “Make sure that the things your paycheck is going to first are things like student loan debt, utilities and car payments, and think about how you’re spending on all your credit cards.”
Kinane gave the example of having a Hulu account, Netflix account and cable subscription, and taking the time to think about if you really need all three.
“Just thinking through all of that, and assembling and organizing the payments you make every month from highest-priority to lowest-priority, you may [find that you’re] able to make some room there,” he said.
3. Consider Student Loan Refinancing
When you refinance student loans, you take out a new loan to cover all or some of your student loans. This could allow qualified borrowers to pay a lower interest rate.
“Look at banks and financial service organizations that offer student loan refinance opportunities,” said Kinane. “Look at current rates and look at where there may be opportunities to restructure the loan — there may be income-based repayment programs, and you [might be able to] get a lower monthly payment. I would suggest that consumers talk to different organizations to get a good understanding of what the landscape is for repayment and refinance programs.”