Student Loan Debt and How It Affects Young Workers
While many students are combining scholarships and grants with federally backed and private student loans to create a clear financial path for a college degree, some are taking drastic steps to avoid student loan debt. For example, GoFundMe college campaigns solicit funds from friends, family members and perfect strangers, while income share agreements allow students to attend school for free if they commit to pay a percentage of their post-graduate income to investors.
Despite all that, federal student loan defaults topped 1.1 million in 2016, and according to a new survey by American Student Assistance, student loan debt is a heavy weight on young workers. The survey – which includes responses from workers between the ages of 22 and 33 as well as responses from human resources managers – reveals the following:
The negative effects of student loan debt on young workers:
- 56% worry about repaying their loan either all the time (26%) or often (30%).
- 40% report that worrying about their student loans has impacted their health.
- 55% would like to go to grad school but couldn’t take on any additional student loans.
- 61% have considered getting a second job to help pay off their student loans.
- 54% of young workers report that right now, paying off student loans comes first, and they will put off saving for retirement until later.
Looking for help:
- 63% of young workers report that they don’t have anyone to turn to for help with regard to paying off their student loans.
- 75% of HR professionals report that their company does not offer any guidance or assistance regarding student loans.
- 79% would take advantage of free access to a student debt loan counselor.
- 89% would take advantage of overall long-term financial planning.
- 86% say they would commit to an employer for five years if the company helped pay back their student loans.
- 93% of young workers would take advantage of a signing bonus targeted at paying back student loans.
- 92% would take advantage of a match for student loan repayments similar to a 401(k) match.
Samantha Gorelick, a millennial wealth adviser with New York-based Heron Wealth, believes that young workers have to carefully weigh their options. “Of the many factors to take into consideration when choosing a job, the most general is to determine how long it will take to repay student debt depending on the earning potential of a given job.”
For example, she says for borrowers to be eligible for debt forgiveness, they have to work in public or not-for-profit sectors, which decreases the types of jobs they can even apply for. “Also, the idea of going even deeper into debt for graduate school might seem daunting, but then the earning potential on the other side of that post-grad degree can mean even faster repayment of student debt in the long term.”
Student loan debt and financial literacy
The survey results confirm the need for financial literacy among young workers. According to Susan E. S. Howe, CPA and member of the American Institute of CPAs Consumer Financial Education Advocates, “Financial literacy is every bit as important as linguistic literacy because it is one of the keys to building a secure and comfortable life.”
Some students are between a rock and a hard place because their wages don’t cover their student loan debt. However, a part of financial literacy involves researching the wages and job outlook of a particular major, and also understanding the repayment options on a loan. Many schools offer student loan advisors, but often students don’t take advantage of these resources when they’re in college.
“Having the knowledge to make sound financial decisions is the difference between a lifelong financial struggle living close to the edge, and being able to provide for a comfortable future for your family and yourself,” Howe says.
That’s why it’s never too soon to learn the basics of money management. “The earlier one is equipped with solid financial literacy skills, the more likely that good fiscal decisions early in a career can lead to success and prosperity,” Howe explains. “It could be the difference between retiring comfortably, or having to work until health or age force retirement.”
It’s not hard for Kevin Gallegos, vice president of Phoenix operations with Freedom Financial Network, to believe that student loan debt is negatively impacting young workers. “Finances are one of the major causes of stress in life, and reportedly the number one cause of conflict in marriage.”
While college tuition and fees are high enough, some students find other uses for student loan money, such as purchasing cars, clothes, paying cell phone bills, and other expenses. However, borrowing more than they need will result in a higher loan amount and take longer to pay off. Gallegos believes it may be necessary to make some difficult decisions to get out from under the mountain of debt. “If you are truly committed to taking control over your finances, you’ll likely find that many material possessions are not that important; in general, focusing on what you need, versus what you want, equates to far less stress.”
But as the survey reveals, college grads – as well as those who didn’t finish school – turn to employers for help with their student loans. However, most companies are not prepared to offer financial aid assistance or advice on student loan debt.
Gallegos concludes, “People who go through life without a grasp of personal finance have an exceedingly difficult, if not impossible, time achieving what they want (e.g., retirement, a vacation, car, etc.) and doing what they want.”