Student Loan Debt Destroying Quality of Life
|May 7, 2012||Posted by Roshawn Watson under Uncategorized|
Many people go into debt trying to look rich, thinking that the debt affords them a better quality of life. Such sentiments are overly simplistic and somewhat shortsighted. I have made the case several times before: debt actually decreases quality of life. That’s because those who are indebted have less money to spend as they desire than those who earn comparable incomes and are debt-free. However, we often set up an arbitrary hierarchy for different types of debt. While I am encouraged about the increased awareness of the the good debt myth, still many label some debts as “good” or “okay” to make them more socially acceptable.
Perhaps no debt is so reverenced as the ubiquitous student loan. Don’t dare suggest student loans are bad. You’ll be classified as out of touch. After all, school tuition has increased outrageously, and education is your passport to the future. Unfortunately, lately the future of borrowers have been plagued with turmoil, delayed dreams, and multiple disappointments. Recently, I came across an article that only strengthened my belief: even student loan debt can decrease quality of life.
Student Loan Debt and Marriage
The hallmark of healthy marriages is teamwork. There shouldn’t be “his” or “her” debt. It should “their” debt, regardless of what the loan agreement says, assuming that both spouses are working together. Despite knowing this on a conscious level, student loan debt sometimes strains some marriages. For example, the borrower may feel like he is burdening his partner with debt unfairly and thereby feel a guilt about working through the debt together. This guilt may be confounded by his wife’s resenting the additional financial hardship the student loan debt represents. Ideally, both spouses would approach this as adults and work together to improve their situation. However, even in the best case scenario, deep-seated emotions regarding debt, obligation, partnership, and contributions can rear their ugly heads and create marital discord.
In addition to the emotional challenges, there is also a financial reality to bringing a lot of debt into a marriage. Quite simply, there is less money for the couple to pursue their dreams, and the stress of dealing with a mountain of debt can take its toll even on very sound relationships. It is unsurprising that financial problems are among the top cited causes of divorce. Such concerns provide the context for why graduates with student loans appear to be increasingly delaying marriage.
Student Loan Debt and Children
As we discussed last week, it costs an estimated $250,000 to raise a child from birth to age 18 according to the Census Bureau. The financial implications of an expanding family are clearly significant. Accordingly, graduates appear to be delaying having kids as well. Part of this stems from concerns that the added expense of additional mouths to feed may make paying off the student loans more difficult. With finite resources and a lot of debt, having an additional person to care for may not be trivial. Having children is also life changing in other ways. For example, since Generation Y is more likely to have an entrepreneurial bent, there may be additional concern that having children could mean that they’ll be stuck in the rat race forever.
Another consideration plaguing graduates regarding having children is that their student loan debt diminishes their ability to care for children. After all, we’re talking about the boomerang generation: if you are having difficulty caring for yourself, you are not in a prime position to care for others. Of course, on an intellectual level we know that love is what’s necessary to raise kids and that many people grow up with less and still become productive members of society. Still, such concerns are possible deterrents nevertheless. Additionally, some delay having children because they feel that fastest way to climb out of their financial holes is using their ambition to increase their income. Sometimes this may entail working extra hours, extra shifts, having another job, or starting a business. Regardless, the goal is to either increase income immediately or to position themselves to quickly advance their career (which will also increase income); either option may be at odds with simultaneously raising a family right out of school.
Student Loan Debt and Bankruptcy
Many are familiar with the old story of physicians, lawyers, and other high income-earning professionals who racked up ridiculous amounts of student loans and other debt, only to file bankruptcy to wipe clean their respective financial slates, so that they can keep their high income and not pay their creditors. Well those days for the most part are long gone.
Debt is one of the top 5 causes of bankruptcy; however, after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, student loan debt survives even bankruptcy unless the debtor can prove repaying the loan would create “undue hardship,” which is a legal standard that is particularly difficult to meet. You may think that this fact alone would prompt families to steer clear of ridiculous amounts of debt to pay for school, in favor of creative solutions, but that’s unfortunately not the case. Student loan debt is still very socially acceptable and is growing.
During times of financial hardship, borrowers have some options for repaying federal loans, such as Income-Based Repayment and Loan-Forgiveness programs; however, most private loans only allow repayment on their timetable, or else. Borrowers who default on private loans are subject to collection calls for the life of the loans, where they will likely be threatened, insulted, and embarrassed. Additionally, these lenders punish those who become delinquent and eventually sue them. The sometimes illegal and downright nasty tactics that collection agencies use to intimidate debtors into repayment are well documented. Moreover, borrowers who default also have to deal with penalties and interest. For private companies, the collection fees can be up to 25% of the original loan balance. A recent WSJ article profiled Danielle Jokela who owed $100,000 upon graduation, paid for most of 5 years (deferred paying the loan a couple of times for a few months), and still owes $98,000 due to the fees associated with the deferment. It is absolutely disheartening.
I admonish students to think very carefully before taking on debt for school, particularly a significant debt load. In the US, two-thirds of college seniors graduated with loans in 2010, and the average loan exceeded $25,000 (Project on Student Debt); of course, that amount can vary widely. Additionally, think very carefully about your income-earning potential after graduation. For example, does it really make sense for the typical family to spend $200,000 educating a child for social work, where the median income of US national averages is $47,005 (salary starts around $30,000)? Also, consider the likelihood of graduation (nothing sucks more than having the debt without the degree or job); unfortunately, I know too many people in this position too. I apologize if this is offensive. I just find the situations that many of us willingly place ourselves in tragic. Think about the life you want to lead BEFORE you attach your John Hancock.
From someone’s who’s views on debt are more liberal than many, let me leave you with an admonishment from Robert Kiyosaki: “debt is a two-edged source.” In other words, improper usage can bring you to the brink of financial disaster. Don’t sign yourself up for a trip that you are not prepared to take.
There are two ways to conquer and enslave a nation. One is by the sword. The other is by DEBT. John Adams
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