Many borrowers are not aware that repaying student loans can impact other aspects of your life besides your wallet. In this module you will learn:
When you take out a loan, it can be kind of hard to imagine what repayment might look like and what it will mean in terms of your other financial decisions in the future. If you’re feeling confused or overwhelmed, here is one way to approach thinking about life with loans:
- First, estimate your income after graduating
- Then consider what your monthly loan payment will be and how that will impact your budget
Loans can also influence your decisions about:
- Buying a house
- Getting married
- Going to graduate school
- And building your long-term savings
To learn more about how student loans can impact all of these areas, take a look at the rest of this module!
How might my student loans impact other areas of my life?
No matter how much you borrowed for your education, student loans can significantly affect your financial decisions for many years. We have highlighted some things below that are affected by your student loans for your consideration.
If you are trying to move out on your own and rent an apartment, keep in mind that your student loans and your repayment history will impact your credit report, which most landlords check before renting to you. If you have a low credit score, then you may have a more difficult time finding housing.
If you are interested in buying a home there are a few things to consider:
- Debt payments will limit the amount of money you will have to save for a down payment and other mortgage-related expenses
- Student loans are included in the debt-to-income (DTI) ratio used to qualify for a mortgage
- A high DTI may make it hard to get a loan or limit the amount of the home loan you are offered
- If the monthly payment is not made by you (ex. it’s made by a family member), your loans will be excluded from the DTI calculation
- If you defaulted on a loan, your credit score will likely negatively impact your ability to get a mortgage
- Many people choose to delay marriage due to student loans
- Debt can add stress to a marriage
- Tax Impacts:
- Married Filing Jointly: monthly loan payments are based on household income (for IDR plans) and allow for a tax deduction up to $2,500 for student loan interest
- Married Filing Separately: monthly loan payments are based on borrower income only (for IDR plans); however, you cannot claim an interest deduction
- If you are on a REPAYE IDR plan, your monthly loan payment will be based on your household income regardless of your filing status
If you already have a lot of student debt from your undergraduate education, you may want to carefully consider and research if a graduate school degree (and the costs associated with it) will help you earn more money or advance your career. Look for graduate assistantships, fellowships, and scholarships to pay for the advanced degree.
Time is a non-renewable resource. The best way to save for the future is to start saving today. Many people feel that their income and debt payments do not allow them to save. Saving as little as $5/week adds up over time and can help build a strong and prosperous future.
Check Your Understanding
#1. Which is the only IDR plan that uses your total household income, regardless of how you file your taxes?
In some cases, student loans can cause financial hardship, but it depends on how much you borrowed, your income after graduation, and your repayment plan
#2. In general, which of the following are benefits of getting a degree?
All of the above can be benefits of a degree