College Debt Crunch: The Biggest Threat to Young Americans’ Financial Well-Being?
The Impact of College Debt on Graduates
With the number of students relying on loans to finance their college education at an all-time high, many college graduates enter the workforce with debt loads that put them in a hole for years, or even decades, after graduation.
In order to better understand the long-term impact of education debt on college graduates, AllianceBernstein surveyed 1,508 college graduates ages 21 to 35 to examine their college finances and experiences, as well as their current circumstances, attitudes and lifestyle. This research confirms that college debt has a long-term impact on graduates’ and their children’s financial well-being and outlook on the future. Understanding the impact of college debt is an important step in helping investors save toward a brighter future.
The Real World: College Debt Edition
While the first decade out of college is financially challenging for most people, our research shows that it is particularly so for those with college debt. In fact, better than nine in ten (91%) of all respondents agreed that “people who graduate without any college debt have a big advantage in life.” Graduates with college debt are more likely than graduates without debt to live paycheck-to-paycheck. Moreover, 34% of those with college debt (versus 17% of those without debt) have sold personal possessions to make ends meet.
Graduates with college debt struggle financially
Not surprisingly, graduates without college debt are more satisfied with their current level of savings (42% vs. 23% for people with debt) and have a higher overall satisfaction with their financial situation than graduates with college debt (52% vs. 32%).
Life Events Delayed, Career Dreams Deferred
Taking out loans to pay for college can be an expensive strategy—and not just financially.College debt impacts well-being, career, and lifestyle choices for years after graduation day. Thirty-two percent of graduates with college debt were forced to live at home longer than expected or move back in with a parent or guardian. Forty-three percent of the indebted have postponed graduate school, and 39% of college graduates with debt said they have left a job they liked because they didn’t make enough money.
Our research also shows that college debt impacts most graduates’ ability to save for long-term goals. More than half of those surveyed (55%) reported that their household education-related debt has limited how much they have been able to save for retirement.
Among graduates with college debt, many were forced to delay
Here Today, Here Tomorrow
Those who graduated from college with debt don’t see their situation improving anytime soon. Seventy-four percent of households with education debt say it has been difficult to pay it off, and of those still paying off college debt, 39% say it will take them at least another 10 years to finish.
For many, education debt has contributed to accumulating even more household debt. Nearly two in five of those who graduated with debt have accumulated $50,000 or more in household debt (vs. 15% of those who graduated from college without debt).
Graduates in households still paying off education debt said it has contributed to
Today’s College Debt Affects Future Generations
The survey found that college debt not only hinders graduates’ long-term prospects, but also impacts their ability to save for their own children’s college education. Just 20% of those with household education debt said they save more each year than they pay out in college loans or other debt obligations.
Among those households with education-related debt, 46% said that college debt has greatly or somewhat impacted their ability to save for their children’s education.
When students take on debt to pay for college, few realize that they can pay the price for years, and generations, to come. Saving well for college costs, and reducing the amount of education debt to be paid off, can help break that cycle of debt.
Graduates without college debt are more likely to have started saving for their children’s college costs
The following chart shows how much a hypothetical portfolio could grow if monthly loan payments were invested in a hypothetical portfolio instead.
Student Loan* |
Investment** |
Total Loan
Amount |
Total Principal
& Interest |
Monthly Payment for 10 Years |
Total if this loan payment were invested monthly for 10 years |
| $10,000 |
$13,322 |
$111 |
$18,194 |
| $20,000 |
$26,645 |
$222 |
$36,388 |
| $30,000 |
$39,967 |
$333 |
$54,582 |
| $40,000 |
$53,290 |
$444 |
$72,776 |