Stopping the Student-Loan Debt Stress

By Julie Rains on 25 July 2007 25 comments
Photo: NaniRolls


Having earned my bachelor’s degree with no student-loan debt (thanks to the extremely low tuition of my public university and my parent’s generosity) and before graduate school became a near necessity to landing a good job way back in the 80s (perhaps about the time your parents graduated), I had an inkling that things have changed since then. Apparently, they have.

Erin Burt, who writes about personal finance for, has provided me with some insight into student-loan debt and its impact on those in their 20’s and 30’s. She tells me that “About 2/3 of 20-somethings have student loan debt, according to a 2006 study by Experian. And a big chunk of that is in student loans.” (correction and addition made on August 2, 2007)

Ms. Burt also refers me to “College on Credit: How Borrowers Perceive their Education Debt” (a 40-page report in PDF) from Nellie Mae, a student loan company. “You'll see that average student loan debt has more than doubled in the past decade. And that's in inflation-adjusted dollars,” she points out. (Average debt has increased from $11,775 in 1987 to $27,600 in 2002)

Although student-loan debt is commonly viewed as a needed and acceptable way to access a viable career, why are students taking on more debt? Higher tuition costs and a more pressing need to earn a graduate degree are two obvious causes. I wonder, also, if relatively low interest rates and generous loan provisions may influence the decision to take out a loan rather than pay as you go. It seems foolish, as a parent or relative for example, to take money out of an investment account that has returned 8-20% in the past few years when your student can obtain a 3.9% loan, for example. And, as a student, if a high salary awaits you upon graduation, it seems like a good idea to focus on your studies (and not working at a minimum-wage job), so that you can start making some money that will allow you to easily pay off your debts.

Still, debt causes stress. According to the "College on Credit" summary, “Managing monthly payments is critical to managing stressful feelings about total debt. Regardless of the actual education debt amount, negative feelings about education debt increase as the percentage of gross monthly income spent on education loan payments increases.” How stressed are you feeling compared to others in a similar situation? Here’s a breakdown of stress based on the Percentage of Gross Monthly Income to Pay Education Debt:

  • Less than 7% - mostly okay with debt
  • 7–11% - slightly more stressed than the “less than 7%” group
  • 12-16% - stressed
  • Over 17% - experiencing high stress

And just as significantly, how does student-loan debt impact your decisions? As Ms. Burt illuminates “That same study from Nellie Mae found that young adults are putting off other life events because of their heavy student-loan debts -- having children, getting married, buying houses and cars. Some are even changing their career plans because of their debt. But when we're taking out these loans, we don't think about the effect it'll have on, quite literally, the rest of our lives.”

So, debt is oppressive and life-altering.

Though I didn’t have student-loan debt, I had mortgage debt in my 20’s (still do, but my dreams of being trapped inside of my house and crawling through a wire-laden obstacle course have stopped) and so have a few ideas for dealing with the financial and psychological burdens of debt:

  • Consolidate loans if you can keep favorable student-loan provisions (for example, you can defer interest and/or principal payments if you become unemployed) and attractive interest rates (for example, a loan rate that is less than what you are earning in a high-interest savings account).
  • Stop wrestling with yourself about paying off loans early (either decide to do it now and develop a payoff schedule or decide to pay the minimum only if your interest rate is low).
  • Start setting aside money so that you will feel more in control of your financial situation; and if you can start investing, you can hopefully earn returns that are higher than your student-loan interest rates.

Photo of student-loan obligation satisfied by teaching at a Title 1 school by NaniRolls

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Greg Go's picture
Greg Go

I keep reading debt management strategies (on Wise Bread and elsewhere) that suggest paying off your student loans last because they're often the "cheapest" debt people have.

Do you think America's record levels of consumer debt is causing a "trickling down" effect where 20-somethings have higher than ever student loan balances because they're busy using (and paying off) their credit cards?

I too was lucky enough to leave college debt-free thanks to a public university and parents' savings. Go mom and dad!

Julie Rains's picture

Well, it makes sense (mathematically) to have the student-loan debt and pay off credit card debt first, b/c credit card debt is usually higher.

I am suggesting that the low interest rates may lead to higher loan balances. Since I remember when mortgage rates were double-digit, I also recall when home prices increased as rates went down (sort of a teeter-totter effect; one goes up, the other goes down). So I am wondering if the cheapness makes them attractive and possibly, overused a bit. I say this because I find myself not wanting to fund my kids' accounts excessively b/c they can work and/or get loans at low interest rates. But now I see the psychological stress that may be added just by having debt.

Also, I wanted to show that is unfair to blame consumer debt on 20-somethings, so at least they could stop feeling guilty for their loans on top of the stress. Things have changed and it's not all about spending too much.

On the other hand, I can't imagine paying to go to a private university unless I was very wealthy. I suppose for some the payback seems reasonable and in some cases, public schools (b/c they are less expensive) may be harder to get into.

Anyway, thought it might be an interesting discussion.

Guest's picture

When I get extra money, like Income Tax return, I try to pay down my student loan debt. They make it impossible to do this...they don't stop the "payment clock". So basically, they just put your payments on hold, and don't charge you interest. They don't apply it to the principal.
They make it impossible to stop this payment clock. So you end up paying just the same amount, they make sure to get every last drop of interest from you that they can.

Julie Rains's picture

Thanks for enlightening me on the payment guidelines; you are probably doing this already but you may consider setting aside that cash and preferably investing it so that when your savings/investment balance becomes larger than your loan balance, you can pay the loan off. If you earn more than your interest rate, then you win (rather than Sallie Mae).

Greg Go's picture
Greg Go

I know some people who left graduate school with over $100,000 in student loans! I can't afford to even think about buying a home, and I started "real life" at break even. It's hard to imagine what it's like for those starting out with such a big debt.

Guest's picture

First, I have overpaid on a Sallie Mae loan and was given the option to apply the extra money to the next month's payment or the principle. This is part of their standard online system for payment, unless things have changed within the last, oh, two months.

Second, I don't really understand what you mean by "payment clock" and how whatever Sallie Mae is doing is so terrible. If you choose NOT to apply overpayment to the principle, then the other option is to apply the overpayment to your next month's bill. In that case, since you've pre-paid, you don't actually have to pay the next month's bill. This can be helpful if you have extra money from a tax refund and have lots of irregular expenses coming up, or are afraid if you don't put money directly towards your loan NOW, you'll spend it on something else. At any rate, you are free to choose if you want to pay your next bill or hold off. I don't really see how they could offer more options.

It all seems totally logical and not evil to me.

All of this seems pretty logical and not shady to me.

Guest's picture

WOW! ARE you sure you have a Sallie Mae loan? I just made a double payment and was shocked to see the bulk go to interest and my principle barely moved. I was even more confused to see that they reduced next months payment to drain me some more so they could keep my loan numbers up.
And in reply to your response the previous post-They Definatly could offer a lot more options! How about an option called customer service or common courtesy. Take a better look around the web and see what Sallie Mae has done to ruin so many peoples hopes and dreams. There are people who have lost their asses over this greedy and oOH yes EVIL organization.
I am really grateful for the students before me who spoke out to inform other students looking for loans or are new to SM's lame business tactics.
I don't bother trying to reach a SM representative because I know better, they never answer, they know nothing ,everyone tells you something different. I do a search on the web and ask other SM clients, thats the only way to know how to work your way around all their B.S.
I don't know maybe you are just WAY smarter than I, maybe you do business the same way they do? Im gonna give you a break and say YOU don't know what you are talking about.
I totally understood what those other people were saying about the "payment clock", they mean you give then money in a timely manner and those scum bags sit on it,and wait and watch the clock and wait til your next due date so they can keep your numbers high. I have never had any company take an over payment and break it up and not put the whole sum towards the loan. Is it just me or what? This is not standard practice. IT IS IN NO WAY LOGICAL. Are you sure you don't work for Sallie or something? It looks like you've got it all figured out, good for you...
Best Wishes to everyone who is struggling out there, dealing with those slags. Somethings gonna go down soon it seems but in any case make sure to tell anyone and everyone- Never, Ever apply for a Sallie Mae loan.

Julie Rains's picture

Here's a link to the page about making prepayments. According to the Sallie Mae website, all federally sponsored education loans and most private loans allow prepayment without penalty.

With the loans I've had, if I prepay, I have to let the lender know what to do with the extra money. Some lenders make it easier to tell them what to do; others wait for you to call and tell them.

Guest's picture

As I'm from Ireland, I got a taxpayer-paid university degree. I thank my lucky stars for being born Irish, because the stories I hear from friends here in North America are heartbreaking, aggravating, you name it. I had total freedom starting out in life, to start a business, to travel, to freelance, or of course to work 8-6 and build my net worth. It's great.

Guest's picture

Can I come have my children in Ireland? :)

Guest's picture

This site provides a useful guide to navigating the different consolidation companies:

Guest's picture

I have $165,000 of student loan debt (public undergrad and private grad school). My parents didn't contribute a dime to my education.

35% of my net montly income goes towards payment of those loans. I have to live at home otherwise I will not be able to save a dime. I drive a sub $20k car. It will take me at least 4 years to save up for a modest downpayment on a home (I live in Southern California).

Something is terribly wrong when some of my credit cards have lower interest rates then my private loans, which are currently at 9.1%. I would have financial problems if I were to move out on my own because of my student loan debt.

What's crazy is that I make $100,000/year. Moral of the story, do you homework and do a cost-benefit analysis to determine if grad school is worth it. I'm almost 28 years old and thought of me living at home until I'm 30 is depressing, but it will be necessary unless I make at least 25% more.

Guest's picture

Another point I wanted to make is that in cases like this, paying off student loans FIRST, is better than paying off credit card debt. My credit card APR is only 7.9% while more than 50% of my student loans is at 9.1%.

Guest's picture

I have been trying to get sallieMae to lower my payments so I can pay them, but my payments are to high, can you tell me HOW I can convince them to do this, I want to pay, but I can not pay the amount they want me to pay, Help sylvan

Guest's picture

Looking at my total debt makes me want to bang my head against the wall. I am so sad about all of this. :(

Guest's picture

My wife and I both lost our teaching jobs this past year due to budget cuts in CA. Our student loan debt (combined, about 90K) seems like a horrible investment in our futures.

Guest's picture

Amazingly, I was just about to look up Sallie Mae loans and try to apply for about 1k because the loans I'm getting directly from my college won't cover everything. However, reading all of this...and I'm glad I did...I will definitely not do so. Thank you all for your info! At least I know that I will not be in debt alone!

Yet, I still feel a bit hopeless trying to figure out how I'm going to pay for my's really sad.

Guest's picture

We've been paying my husband's Sallie Mae student loans for about 20 years!! The original amount was about 46000. We've now paid over 106000 on that original amount and are not yet paid off. Is this common? I can't find anywhere or anyone to help me navigate through it all to explain how we had to pay more than twice the loan amount. Is there help out there?

Julie Rains's picture

I have spoken with people who mentioned having student loan balances as many as 20 years after graduation. One of the neat but dangerous features of many student loans is the loan deferment feature -- that is you don't have to make payments if you can get a deferment for unemployment or illness. However, interest still accrues during this time, on the entire balance. Though the helpfulness of servicing companies can vary, info on student loan balances (their rise and fall with payments applied, etc.) could be available from the lender or servicing company.

Guest's picture

My husband just incurred 90K on his graduate degree at a private university. I am feeling very stressed over this. I am a teacher and we have had to use loan money to supplement our income and pay for coursework. We bought a house when we came to graduate school, thinking that my salary would cover it-- until we found out our new state took 500 dollars more from my paycheck than my previous state.

Now I need to go to graduate school (public, cheap) so that I can have more job security in the future, but I feel trapped by his debt. We are very much in love, ut the financial issue is wearing me down drastically. How can I dream of going to school now?

We are living above our means-- but what can we do? We can't sell our house and I can't make any more money. We live bare bones- no internet, cable, netflix, eating out.. I don't know what else to cut.

Anyone else been in a similar situation? HELP!!

Guest's picture

To anyone considering taking out a student loan for themselves or for their children, DO NOT. If you want to know how student loans really work, I highly recommend you read this book.

My husband and I finished our college endeavors twelve years ago and owe more now than what we did then. My husband lost his job in the tech crash and had trouble finding a decent job for about two years. In the course of the past twelve years, we had forbearance periods in our loans totaling a year and a half. So to be fair, we did take a year and a half off from paying. So in that time, interest continued to accrue. However, that leaves ten and a half years of solid payments of anywhere between $500 and $800 per month, depending on interest rate fluctuations. Around 2005 I believe it was, the government passed a new law allowing those who had consolidated their college loans to take their loans to a new company with a better rate, something that had not been allowed before. We looked over all the incoming offers and filled out all the paperwork only to find out that Sallie Mae had the right to hold our loans and refuse to release them, and they did just that, locking us into our higher interest rate. With that said, we consider ourselves lucky because we never defaulted on our loans. Lord help you if you go into default. They will tack on so much interest and penalities, you will NEVER find your way out. And the government has give them the right to do this, almost unlimitedly. There are people out there, tons of them, who began with twenty or thirty thousand dollars worth of debt and now owe $100,000 or $200,000. This debt is not forgiveable by bankruptcy and they can and will garnish your wages, your tax refunds, your social security checks. If you don't believe me, check for yourself. To sum up, unless government does something to put a stop to the heinous acts these student loan companies are allowed to commit upon people, do not take out a student loan.

Julie Rains's picture

To Guest with husband's debt, you might look into special programs for teachers, such as discounts for mortgage loans, insurance, etc. and see if your school system will pay for your graduate degree -- in some areas, teachers who work in Title 1 schools receive tuition reimbursements.

Guest's picture

Save Our is an online petition dedicated to ending the outrageous loan repayment plans set up by private lenders.

Help us get signatures!


Guest's picture

interesting article. How things have changed with student loans weighing in at 7% or more and savings accounts getting 1% if you're lucky. i think this proves beyond a doubt that all debt is bad, and that you should pay cash whenever possible. Since I've had to support myself since high school, i've always made too much money to deduct student loan interest, but barely enough to get buy. With my demanding 24/7 access to me( ie being on-call with a pager or cell phone), I'd often miss so many classes that I'd have to drop a class after the refund date, and still owe tuition for the class. This lead me to not have a degree but have a heft 50k student loan that I finally have enough money to start tackling. Moral: When in doubt, don' take a loan out.

Guest's picture

Is it really possible to stop it without getting rid of the debt? I am stressed about my student loan debt. I have $80K (mostly private loans) in student loans and I went to a public school. Unlike some, my parents weren't able to help me out and made just enough so I didn't receive Federal Aid. As far as decision making....I eat, sleep and blog students loans. I do not know how anyone can go about living their lives not stressing about the amount of interest they pay. After doing my taxes I was laughing(angrily) at the $2,500 deduction when I paid more than $10K in interest.Thank you for the tips.