Student loan debt crisis leads to risky financial behavior

This story is part of a series on the financial health of Americans, based on a survey conducted by the FINRA Investor Education Foundation, a nonprofit organization dedicated to financial education and empowerment.

When the Education Department began to garnish her salary, Jen Thompson of Lansing, Michigan, knew something was wrong with her student loans.

Two years earlier, with a monthly payment of $ 809 – almost the same as her mortgage – she consolidated the loans for a payment of $ 295 with a company advertising on the radio. It turned out to be a scam and his account went into default.

The setback is one of the many problems caused by college debt. The loans have plagued her family’s finances for years, putting them in debt with credit cards and forcing them to resort to payday loans for their daily expenses.

“We had to go to one of those type of ‘we refinance everybody’ dealerships to get a family car. We pay 21.9% interest, ”says Thompson, 41. “It was a smoker’s vehicle. It’s disgusting, but it was the only option we had in our price range.

As presidential candidate Bernie Sanders comes up with an ambitious plan to eliminate all student debt, it’s important to note how the financial fortunes of college graduates diverge depending on whether they repay their student loans.

People struggling with student debt feel less financially secure, adopt riskier financial behaviors and have a harder time making ends meet than those without a loan, study analysis finds 2018 on the financial capacity of the FINRA Investor Education Foundation provided exclusively to USA TODAY. It’s even worse for borrowers who never completed their education.

“Having student loans is clearly associated with a lot of financial hardship,” says Gary Mottola, research director at the FINRA Foundation and who calculated the numbers for USA TODAY. “And those without a university degree in particular are in a lot of financial difficulty.”

Feeling financially stressed

Only a quarter of graduates with loans are happy with their finances, compared to 42% of graduates without debt. Seven in 10 of those with loans and a degree feel financially anxious, compared to just 54% of those without loans and 58% of those who never went to college, according to the study. the FINRA Foundation.

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“It’s horrible,” says Samantha Grandquist, 37, of South Wales, New York. “I don’t understand how I’ve paid hundreds of dollars over the past seven years and still owe more than I originally borrowed. Like, it’s kind of a scam.

“I don’t understand how I’ve paid hundreds of dollars over the past seven years and still owe more than I originally borrowed. Like, it’s kind of a scam.

—Samantha Grandquist, 37

Grandquist borrowed $ 20,966 to attend Erie Community College South. She graduated in 2012 with a diploma in printing and a web design. Since then her monthly payment has hovered between $ 10 and $ 200 and now she owes $ 21,113.73.

Grandquist is not alone in his confusion. About half of student loan borrowers did not understand how much they owed, the study found. Another half think they will never pay off their student loans.

“One of the most important things we hear is that they didn’t fully understand what they were getting into,” says Lisa Frankenberger, Credit Advisor at Buffalo. “They think, ‘This is the program I want, this is the school I want,’ so they sign the loan documents without realizing the impact it will have on their lives.”

Grandquist took on several jobs to help him pay off his loans. She is a teaching assistant. She works in a gas station and takes care of the catering next door.

Likewise, Thompson says her husband is working overtime and landing seasonal retail jobs, echoing what the FINRA investigation found. Higher proportions of student borrowers have secondary hardship than those without university debt.

401 (k) and insurance loans, pawn shops and auto title loans

This extra work is often not enough to prevent borrowers from making adverse financial decisions. Like many others, Grandquist took out a loan against his life and 401 (k) insurance. A quarter of graduates with student loans borrowed on their 401 (k), while another quarter made hardship withdrawals.

The numbers are worse for those with loans but no degrees. Half of these borrowers took out a loan, while 48% made a hardship withdrawal.

Often times, those struggling with student debt depend on credit cards to fund other daily expenses while they make their loan payments, says Anissa Schultz, a credit counselor in Nebraska.

Nearly three in five graduate borrowers have paid only the minimum, paid late or over-limit fees, or obtained cash advances in the past year, according to the survey. This share rises to 78% of those who have loans but no diploma.

“The payments are so big and coming due that they come to me and say, ‘I need a budget, I can’t make my credit card payments,’ says Schultz.

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Others are turning to even riskier loans, such as payday lenders, pawn shops and auto title loans, according to the survey. Thompson has Christmas gifts and school activities for his children.

“Even in the public school system, things aren’t free,” she says. “You pay to play, pay to participate, pay to eat.”

Community college

If Thompson could start all over again, she would go to community college for the first two years to save money. She also worked during her studies.

Nearly half of student loan recipients would have liked to have gone to a cheaper university, compared to just 9% of graduates without loans, according to the FINRA Foundation survey.

Financial pressure from loans also makes it more difficult for Americans to save for their children. Overall, there was a decrease in the share of Americans saving for their children’s college starting in 2015, the previous iteration of the FINRA Foundation survey.

“It’s almost a negative legacy,” says Mottola. “We could envision young parents deferring their savings for their children’s education to pay off their own loans. So their children will have to borrow more to pay for their education. “

It’s a consideration in Thompson’s house. His eldest son, Nathan, is a freshman at Michigan State University. The little savings the family had for their education ran out after the first semester. He suggested giving up and going to community college instead.

“We go back and forth,” says Thompson. “We don’t want him to have the same debt as us, but we don’t want to hamper his future either.”