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Student Loan Debt: The Realities, The Consequences, and How It Will Affect You

Abigail Endsley
Abigail Endsley

May 22, 2020

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Student loan frustration

College is the automatically-assumed next step for any high school graduate hoping to live a white-collar lifestyle. It’s your training ground to gain the skills and credentials you need to start a career, build a life, and—quite literally—graduate into adulthood.

But there’s still one major hurdle standing between you and college graduation: money.

Averaging $101,160 in total cost, college is a tad expensive. (And that’s just estimating public, 4-year, in-state colleges, which are significantly cheaper than private or out-of-state options.) Fortunately, loans are there to help. Think of student loan debt like an investment: you’re borrowing money to pay for a degree so you can get a good job after you graduate. Once you’ve got the job (read: are finally making money of your own), that’s when you’ll go back and pay off the loan. See how that worked?

Borrow money, get degree, get job, pay off loans. That’s the plan. And at first blush, it seems like a good one. Operating just like a business loan, home mortgage, car loan, or any other form of debt, getting a student loan seems simple and straightforward.

However, taking on student loan debt is a lot more complicated than borrowing a couple bucks from a friend. And it’s all these little complexities that carry the potential for financial destruction.

5 Consequences of Student Loan Debt

1. You have no idea if you can actually pay it back.

Student loans may sound simple, but let’s not forget about the context here:

  • The average student’s loan debt is $37,172; over a year’s salary for many. (We’ll assume the other $63,988 is paid for via grants, scholarships, or out-of-pocket funding.)
  • The average borrower is 18 years old.
  • The average 18-year-old has never actually worked in the field they’re interested in pursuing post-graduation. In fact, many have never worked at all.

On top of that, attending college is not a guarantee that you’ll get hired in your desired career, or that you’ll get a job that pays well, or that you’ll get hired at all. It’s not even a guarantee you’ll finish (33% of students drop out before earning their bachelor’s).

Bottom line: college isn’t a magic bullet. It—like the debt you use to pay for it—is an investment. And an investment is not a guarantee.

But borrowing $30,000 with no clear idea of how you’ll pay that money back isn’t even an investment. It’s a serious financial risk. Especially when you consider that…

2. Interest compounds daily.

Student loans collect interest at an average rate of 5.8%. When this process starts depends on the type of loan you take out. (Some loans begin collecting interest directly after signing the dotted line, and some give you a grace period of 6 months after leaving school. You can read more about that here.) What’s important is that once a student loan does begin gathering interest, that interest compounds daily. This means every day, the loaner calculates 5.8% interest on the remaining principal loan amount, or if your loan has been capitalized, the total amount owed—collected interest and all. Not a good situation for you.

So if you borrowed $30,000, the day your loan begins collecting interest you’d owe an extra $4.77. The next day, you’d owe $9.54. After a month, if you made no progress paying off your loan, you will have tacked on at least $143 in interest. And this process will continue daily until your debt is paid in full. The best case scenario (not a single missed payment) leaves you paying a total of $9,600 in collected interest on top of your original $30,000 loan amount.

3. Student loan payments pay off interest first.

So now you owe a minimum of $330 per month* for the next decade. Not a great situation, but it’s not unbearable either… except that your car just broke down and you had to use every last cent of this month’s paycheck fixing it or else risk not getting any more paychecks.

Now you can’t afford to make a full student loan payment this month, but you did manage to scrounge up $100 from the recesses of your bank account. It’s better than nothing, but you were also already a little (okay, a lot) behind on your payments. You’ve collected a lot of unpaid interest, and since your payments go to pay off interest first, that $100 doesn’t even touch the principal amount at this point. Your unchanged loan amount will simply continue generating more interest at the same rate until you can manage to make up those behind-schedule payments… and all the extra interest they’re costing you.

4. You’re stuck with your student loan debt—no matter what.

But the real kicker for student loans is the fact that they never “go away.”

When someone takes out a loan to buy a house or car, often they have to offer some kind of collateral—some proof that they’re guaranteed to pay off that loan or the bank gets to re-possess that item.

But a bank can’t exactly repossess your bachelor’s degree. So, if you fail to pay your debt, even filing for bankruptcy isn’t enough to cancel future payments. That debt will follow you, ever increasing, until you pay it off or die.

5. In the end, student loan debt costs a lot more than just money.

Consider that what we’ve been talking about up to this point is the average student’s experience.

What if you need to borrow more than $30,000 to pay for college? What if you don’t get a 5.4% interest rate, but end up with 7% or 11%? What if you aren’t able to get a job at all for the first few months after college, or your loan ends up capitalized (collecting interest on top of interest)?

Turns out, most students aren’t able to pay back their loans in the 11 years they’re expected to. It actually takes them 21. That’s 21 years of living with a debt payment every month. 21 years of gaining interest every day. 21 years of growing expenses (a lot of life happens between the ages of 18 and 39), leaving less and less of your paycheck free for student loan payments.

Not to mention how student loan debt is affecting students’ lives in some pretty noticeable (and serious) ways beyond the pure numbers. Their debt is keeping them from moving out, buying houses, getting married, having kids, and starting businesses. It’s forcing many to work high-paying jobs they don’t actually enjoy simply because they need that job’s salary. Or, worse, they work low-paying jobs that won’t cover their loan payments, sinking them further and further into debt.

Some students are so weighed down by the emotional baggage of their ever-increasing debt (on top of the emotional baggage that comes simply with growing up) that they experience severe negative health symptoms or, in the case of this student, even contemplate suicide.**

But, maybe I’m just being pessimistic. That probably won’t be you, right? Your parents make decent money, and you’re pretty smart! You’ll probably get a scholarship or two, and you’ll be able to graduate with minimal debt at worst… right?

Wrong.

You’re Not The Exception.

Everyone thinks they’re the exception. Everyone thinks student debt happens to other people. Everyone thinks they’ll get the scholarship, the grant, the endowment, or some other magical solution that will send them to college on someone else’s tab.

And it’s true, some students are the exception. But you’re better off assuming you aren’t one of them.

First off, most scholarships aren’t enough to cover all your college costs. Not only are these awards difficult to attain, but the vast majority of them are a few hundred to a couple thousand bucks. Now, $1,000 isn’t a bad haul, but you’ll need 99 more of those if you want to cover your $100,000 bill entirely in scholarships.

So unless you’re so smart, so unique, or so good at sports that colleges want to pay you to attend their school, it’s highly unlikely you’ll be able to go to college on scholarships alone.

But what about financial aid? That’s free too, right?

Yes and no. Some financial aid is free money—specifically the Pell Grant or a school-sponsored, needs-based scholarship (fancy speak for “a discounted tuition rate”).

But here’s the thing about grants and needs-based scholarships: if you (or your parents) make over $50,000 a year, you don’t stand a chance of getting them. The more money your family makes, the less the government and schools want to help you.

And the rest of your financial aid options? Those are just loans. Not free at all.

This leaves the majority of college students in what we call the Debt Zone: that awkward spot where you don’t earn enough to pay for college out-of-pocket (typically more than $200,000), but also aren’t poor enough to qualify for aid (less than $50,000).

If your family income falls between these two numbers and you don’t have some other crazy exception, then you’re in the Debt Zone. That leaves you and 45 million other students with a choice: take on student debt or don’t go to college.

While there are some circumstances in which taking out student loans for college is both necessary and helpful, especially for students pursuing high-demand, high-paying fields, like medicine or engineering, our opinion is that taking out student loans to pay for college is a dangerous move, especially if you don’t know what you want to do with your life afterward.

Fortunately, college doesn’t have to be a debt sentence.

If you’re stuck in the Debt Zone, but you’re really not excited about living under the immense financial and psychological weight of student debt, then I have good news for you. There’s still a way for you to earn a bachelor’s degree debt free.

The secret isn’t to find “free money” somewhere else to cover the immense cost of college. The secret is to make college affordable by cutting out the “extras” and focusing on exactly what you need to graduate. That’s what we do at Unbound.

Every day, we help students who are stuck in the Debt Zone find more affordable paths to their bachelor’s degree. Our students are able to:

  • Compare their best college options to find the best one that fits their life and budget
  • Take classes that won’t break the bank
  • Pay for college one course at a time (instead of in one lump sum)
  • Choose online classes with the flexibility to fit around a full-time job or other life priorities

You remember that $30,000 loan we talked about earlier? That’s how much we can help students save by lowering their overall costs, removing the need to take out loans all together.

Interested in learning more about how Unbound can help you escape the Debt Zone, pay for college in cash, and graduate debt free? Check out our website to learn more.


*An estimation of your principal loan payment and your monthly interest payment.

**The attached reference contains political opinions unique to the author, not endorsed by Unbound. (We’re just interested in the story.)

Abigail Endsley
Abigail Endsley

A former student counselor and Unbound student, Abigail is passionate about empowering others to achieve their goals. When she’s not dreaming with her friends, you can find her reading or singing Broadway songs. Loudly.

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