4 Ways Student Loans Are Bad For You - And How to Fix Them

Student Loans Can Hinder Your Ability to Reach Financial Milestones

A grad student considers using student loans to finish school.

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Student loan debt isn't a new trend, but it's an alarming one. Between 2009 and 2019, total student loan debt in the U.S. increased 113% from $658 billion to $1.4 trillion.

The alarm bells aren't ringing solely because of national debt levels, though. Individual students are graduating from college with an average of around $29,000 in student loan debt, a burden that can affect their ability to reach major financial milestones, like buying a home, investing, or saving for retirement. In some cases, having too much student loan debt can even prevent you from being able to stick to your monthly budget and pay all your bills and living expenses.

Read on for four ways that your student loans are hurting you and what you can do to manage your student loans and plan for a better financial future.

Affects Your Debt to Income Ratio 

Your student loans can affect your debt to income ratio (DTI). This is the ratio that determines how much your income is taken up by debt payments. Lenders will look at this to determine if you qualify for a car loan or for a mortgage. Most experts suggest staying at 35% or less debt to income ratio.


If your ratio is too high you may not be able to qualify for a loan. Another possibility is that you may qualify for loans but at a much higher interest rate, which would further increase your monthly debt obligations.

Reduces Your Ability to Take Risks

Having a large monthly student loan payment can also prevent you from taking risks in your 20s. For example, you may end up choosing the more stable company instead of the startup with bigger growth opportunities because you want the stability to help you cover your payments.

Or, you may pass up on job offers that require a move because you don't have enough money saved up to cover moving expenses or any lost wages incurred between quitting your old job and starting your new one.

Makes It Harder to Buy a Home

Many recent college graduates are putting off buying their first home because of their student debt. A 2019 report from the Federal Reserve found that homeownership rates drop 1 to 2 percentage points for every $1,000 of student loan debt that consumers in their late 20s and early 30s. These borrowers may be hesitant to accumulate even more debt, while others may not be able to qualify for an affordable mortgage with a good interest rate because of high debt-to-income ratios.

Student loan debt could make it more difficult to generate a down payment, too, as you may find it more difficult to generate enough breathing room in your budget to consistently save.

Hurts Your Retirement Savings

One of the primary ways your student loan debt can affect you is by limiting the amount you can save for retirement. If you can barely cover your student loan payments, then you may have a hard time contributing to a retirement account. And because you may have to delay your retirement contributions, you delay the benefit of compound interest.


A common recommendation is to devote 15% of your pre-tax income to retirement accounts like IRAs and 401(k)s.

Get Control of Your Student Loans

Though student loans can create financial hardship that affects several areas of your life, you can take steps to help manage the debt.

Create a Budget

A budget and a debt payment plan can help you focus and make it easier to work toward your financial goals. The sooner you get out of debt, the more quickly you can begin to work on your other life goals. A budget can help you identify areas where you can cut back. Worth noting: it's easier to cut back on expenses when you first graduate from college and you are used to living frugally.

Create Extra Income

This may mean taking on a second job so that you can pay down your loans more quickly. It may also mean cutting back on the things you do not need like a gym membership or vacations. Another way you can find money is to put your bonuses and tax refunds toward your student loans, which can accelerate the payoff process.

Consider Other Repayment Plans

If you find that you simply can't make your student loan payments, you may want to look into income-driven repayment plans if you have federal student loans or refinancing if you have private student loans. These options may be able to lower your monthly payment, thereby freeing up money in your budget.

Ask for Help

Never be afraid to seek both personal support from family and friends, as well as help from a financial professional. If you're having trouble managing your student loans, you may want to consider reaching out to a nonprofit credit counselor. Credit counseling services can assist with managing debt and planning for your financial future.

Key Takeaways

  • The average college graduate has around $29,000 in student loan debt.
  • Added debt from school can make it difficult to save up for big expenses like home down payments.
  • Budgeting, increasing your income and exploring alternative repayment plans can help you manage your student loan debt.
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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Experian. "2019 Consumer Debt Study."

  2. College Board. "Distribution of Cumulative Debt by Family Income, Age, and Race/Ethnicity."

  3. Wells Fargo. "What Is a Good Debt-to-Income Ratio?" Sept. 25, 2020.

  4. Federal Reserve. "Consumer & Community Context: A Series Examining Economic and Financial Topics Affecting Consumers and Communities." Page 4.

  5. Fidelity. "How Much Money Should I Save Every Year for Retirement?"

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