This is the fourth story in a series about Americans’ financial health, based on a survey provided by the FINRA Investor Education Foundation, a nonprofit dedicated to financial education and empowerment.
When the U.S. Department of Education began garnishing her wages, Jen Thompson of Lansing, Michigan, knew something went terribly wrong with her student loans.
Two years earlier, straining under her $809 a month payment – nearly the same as her mortgage – she consolidated the loans for a $295 payment with a company advertising on the radio. It turned out to be a scam and her account went into default.
The setback is one of the many troubles the college debt has caused. The loans have hounded her family’s finances for years, putting them in credit card debt and forcing them to rely on payday loans for everyday expenses.
“We had to go one of those ‘we refinance everyone’ type of dealership to get a family car. We’re paying 21.9% interest,” says Thompson, 41. “It was a smoker’s vehicle. It’s gross but it was the only option we had in our price point.”
As presidential candidate Bernie Sanders proposes an ambitious plan to eliminate all student debt, it’s important to note how the financial fortunes of college graduates diverge depending on if they’re paying back student loans.
People saddled with educational debt feel more financially insecure, engage in riskier money behaviors and have more trouble making ends meet than those without loans, according to an analysis of the 2018 Financial Capability study from the FINRA Investor Education Foundation provided exclusively to USA TODAY. It’s even worse for borrowers who never finished their education.
“Having student loans is clearly associated with a lot of financial distress,” says Gary Mottola, research director at FINRA Foundation and who crunched the numbers for USA TODAY. “And those without a college degree in particular are feeling a lot financial pain.”
Feeling financially stressed
Only a quarter of graduates with loans are satisfied with their finances, compared with 42% of grads with no debt. Seven in 10 of those with loans and a degree feel financially anxious, compared with only 54% of those with no loans and 58% of those who never went to college, the FINRA Foundation study found.
I feel like somebody’s watching me: Check your settings if you don’t want Google tracking every move
“It’s horrible,” says Samantha Grandquist, 37, of South Wales, New York. “I can’t understand how I’ve been paying hundreds of dollars for the past seven years and still owe more than I originally borrowed. Like, it’s some kind of scam.”
“I can’t understand how I’ve been paying hundreds of dollars for the past seven years and still owe more than I originally borrowed. Like, it’s some kind of scam.”
—Samantha Grandquist, 37.
Grandquist borrowed $20,966 to attend Erie Community College South. She graduated in 2012 with a degree in printing and one in web design. Since then, her monthly payment has vacillated between $10 to $200 and now she owes $21,113.73.
Grandquist is not alone in her confusion. About half of student loan borrowers didn’t understand how much they would owe, the study found. Another half don’t think they will pay off their student loans ever.
“One of the biggest things we hear is that they didn’t fully understand what they were getting into,” says Lisa Frankenberger, a credit counselor in Buffalo. “They think: ‘This is the program I want, this is the school I want’ so they sign the loan papers not realizing how that will impact their lives.”
Grandquist has taken on several jobs to help pay off her loans. She’s a teacher’s aide. She works at a gas station and caters on the side.
Similarly, Thompson says her husband works overtime and she picks up seasonal retail jobs, echoing what the FINRA survey found. Higher shares of student borrowers have side hustles than those with no college debt.
401(k) and insurance loans, pawn shops and car title loans
That extra work is not often enough to keep borrowers from making financially adverse decisions. Like many others, Grandquist has taken loan against her life insurance and 401(k). A quarter of grads with student loans have borrowed from their 401(k)s, while another quarter have taken hardship withdrawals.
The figures are worse for those with loans but no degrees. Half of these borrowers have taken a loan, while 48% have taken a hardship withdrawal.
Often, those saddled with student debt depend on credit cards to finance other everyday expenses while they make their loan payments, says Anissa Schultz, a credit counselor in Nebraska.
Almost three in five borrowers with degrees have paid just the minimum, paid late or over-the-limit fees or got cash advances in the last year, the survey found. That share rises to 78% of those with loans but no degree.
“The payments are so large and coming due, they come to me and say: ‘I need a budget, I can’t make my credit card payments,’” Schultz says.
From ‘Prada to nada’ and back: Has America really recovered from the Great Recession?
Others turn to even riskier borrowing – such as payday lenders, pawn shops and car title loans, according to the survey. Thompson has for Christmas gifts and school activities for her kids.
“Even in the public school system, things aren’t free,” she says. “You pay to play, pay to participate, pay to eat.”
If Thompson could do it all over again, she would go to a community college for the first two years to save money. She’d also work while studying.
Nearly half with student loans wished they’d gone to a cheaper college, versus only 9% of graduates without loans, the FINRA Foundation survey showed.
The financial strain of loans also makes it harder for Americans to save for their children. Overall, there’s been a decrease in the share of Americans saving for their children’s college from 2015, the previous iteration of the FINRA Foundation survey.
“It’s almost a negative inheritance,” says Mottola. “We could be looking at young parents postponing saving for their children’s education to pay their own loans. So then their children will have to borrow more to pay for their education.”
That’s a consideration in Thompson’s household. Her oldest son, Nathan, is a freshman at Michigan State University. The little savings the family had for his education was depleted after the first semester. He’s suggested dropping out and going to community college instead.
“We go back and forth,” Thompson says. “We don’t want him to be in the same debt we’re in, but we also don’t want to inhibit his future.”