Over half of American college graduates are graduating with some student loan debt, with borrowers owing a total of $1.48 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: Oct. 1, 2019
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.”
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.”
For the full article click here: https://finance.yahoo.com/news/9-ways-student-debt-affecting-174736514.html