| June 10, 2016

Research of the Week: What are You Sacrificing to Make Your Student Loan Payments?

81% of Americans make a personal sacrifice to afford student debt obligations each month.

Each week, Consolidated Credit searches for financial research that can help you deal with your debt and budget. This week…

The interesting study

News today is full of stories of how people are forced to push back major life goals in order to pay off student debt. Now the American Institute of CPAs has a new survey that attempts to qualify just how much Americans are sacrificing in order to foot the bill for higher education.

The big result

According to the survey results…

81% of Americans who have student loans to repay have made some kind of financial sacrifice in order to meet those obligations.

The fascinating details

College education costs stress your life and budget

College student sitting outside a classroom with a hand on his hair, feeling stressed and upset about his grades. So what exactly are Americans sacrificing to repay those loans?

  • 50% aren’t contributing to a retirement account until their student debt is repaid
  • 46% delayed buying or upgrading their current set of wheels
  • 40% delayed buying a home
  • 20% postponed marriage
  • 19% postponed having kids

In addition to these life delays, other survey respondents had to make other hard choices in their lives that they wouldn’t have made otherwise:

  • 46% got a second job to make their payments
  • 40% reduced housing costs by having roommates instead of living alone
  • 37% moved in with family members

With all of these sacrifices in mind, it’s not surprising that 71% of the survey takers said they would change their educational experience if given the chance. In fact, 36% would have just opted for a 2-year community college rather than a more expensive 4-year education at university.

What you can do

If you’re already facing student loan debt then the best option you have for lowering the payments now is to use federal student loan consolidation. There are five options available for consolidation that cover a range of goals – from paying off your loans fast with higher payments to getting the lowest payments possible if you’re facing financial hardship. Which option you choose depends on your situation.

Of course, there’s a tradeoff for those lower payments now and it comes down to the fact that you’ll be in debt longer. So, for instance, if you choose an Income-Based Repayment Plan, the term on your loans goes from 10 years to 25 years. The monthly payment amount is set at 15% of your Adjusted Gross Income (AGI) level compared with the federal poverty line in your state for a family of your size. The payments end up being significantly lower and more affordable even on a low-income budget. However, you stay in debt longer.

Still, lower payments now could make those life delays disappear. If your student loan payments are reduced, you can afford to start saving for retirement or saving up to buy a first home now. Additionally, there is no penalty on any of the consolidation programs for early repayment, so if your income increases as you advance in your career then you can accelerate your loan payoff without worrying about penalties. In the meantime you’ll have a more balanced budget in the here and now so you’re not waiting to start your life because you still have student loans to repay.

If you’re a parent or a student who is concerned about taking on student loan debt, then you need to put in some work to ensure you minimize the out-of-pocket costs of school.  This means saving up in advance through investment tools like a 529 college savings fund, as well as taking time to apply for scholarships and grants so you’re not relying wholly on loans to fund your education. You can learn more in Consolidated Credit’s Affording College section of our website.

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