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The Psychological Effects of Loan Debt

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In my humble opinion, our society is prone to falling into what I call a “drive-up window mentality.” By that, I mean we have so many opportunities before us that we can grow very impatient about getting what we want. Instant credit, microwave eggs, fast cash, no money down, express lunch, lose 30 pounds in 30 days … and so on -- and many of these choices lead to debt.

In the world of higher education, the lure of getting into that one and only first-choice school can lead to making irrational decisions about paying for it. Enjoying the rush of being admitted, along with the attending ”prestige,” can act like a mind-altering drug on objective thinking. “I know what I want and I want it now!” is a commonly seen attitude among younger people, especially those seeking top (or even not-so-top) colleges.


Obtaining immediate gratification can be costly. I recall working with a high school senior who had just been admitted to New York University, a school not known for generous financial aid. Along with her NYU acceptance came good news from a handful of other equally credentialed (in my estimation) colleges that offered far better and much more sensible financial aid packages.

However, these alternative schools and considerations made absolutely no impression upon this young woman’s choice. Her family appeared to enable the NYU decision by expressing a “Whatever she wants!” attitude. Consequently, she and her family went into significantly deep loan debt because of what I call “First-Choice Fever.” Graduating from an undergraduate degree program with almost $100,000 in loan debt can be shattering, regardless of the prestige and immediate gratification enjoyed.

Debt Can Be A Psychological Burden

Most of us have experienced the pressure of bills that are due with barely (or not) enough funds to cover them. While this may have been a relatively brief period for us, as we paid down the balances, consider young 20-somethings who see no light at the end of their student loan tunnels.

I decided to see what information is available regarding the long-term effects of heavy debt on college graduates. A fast search turned up a mountain of results. So I thought I would share just one particular source with you today: The Mental Toll of Student Debt: What Our Survey Shows. Writer Shannon Insler’s article has an introductory disclaimer: “This content is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the financial institution.”

It appears that there’s no undue influence going on here, as is the case with some other “studies” or “polls” that would like to cleverly influence our thinking about certain topics or trends. Objectivity and transparency are hard to find these days, so I offer this information in good faith, hoping that it will inspire some sober consideration before signing up for heavy higher educational debt.

Let’s Take A Look at Some Survey Highlights

The idea of being stressed about student loans has become almost too cliché to have meaning anymore. When we talk about feeling stressed, those around us might simply think, “Don’t we all?”

But the toll of this stress is serious. In a survey of more than 1,000 student loan borrowers, we dug deep on the psychological effects of debt — specifically, student loan debt. More than 61 percent of respondents said they fear their student loan debt worries are spiraling out of control — and more than 70 percent reported suffering from headaches due to the stress of it.

From insomnia to physical symptoms of anxiety to social isolation, student loan-induced stress is threatening to take over the lives of borrowers.

That “spiraling out of control” phrase reminds me of the relationship between easy-credit loans and potato chips: It’s hard to stop after just one. This concept links to the somewhat little-known college technique known as “front loading” financial aid. Front loading happens when a college offers a very appealing aid package for freshman year. It may contain a sizable grant (no need to repay), a big merit scholarship, Work Study (campus job) funding and maybe just a small loan, in any combination. Front loading is used as an enrollment incentive to improve yield -- and, hopefully, a higher ranking position.

Then, in coming years, the balance of the aid package shifts increasingly toward larger and more diverse loans. By junior and senior year, the level of loans has far outrun any grants or scholarships. By then, the poor student has invested a couple years of time and money in his or her education and the thought of losing credits, time and the present monetary investment by transferring is a highly undesirable, if not impractical or downright impossible, option. The front loading of non-debt aid gradually disappears.

The study continues, noting:

From insomnia to physical symptoms of anxiety to social isolation, student loan-induced stress is threatening to take over the lives of borrowers. ...

3 major takeaways about the psychological effects of student loan debt

- People are losing sleep over their student loan debt

First of all, if you ever lose sleep due to stress over paying your student loans, you’re not alone. More than half of the respondents in this survey reported suffering from sleepless nights due to debt — 64.5 percent, to be specific. ...

- People are experiencing physical symptoms from their stress

More than 67 percent of respondents reported having physical symptoms of anxiety due to the stress from their student loan debt.

As if losing sleep wasn’t bad enough, these symptoms include headaches (71.5 percent), muscle tension (55.9 percent) and upset stomach (50 percent). Other symptoms included rapid heartbeat, tremors, fatigue and shortness of breath....

- Some isolate themselves because of their debt

Depression and anxiety can lead to self-imposed isolation. More than 74 percent of respondents reported shutting other people out of their lives often due to their student loan debt stress. In their own words:

“I avoid doing things with friends and family because I don’t want them to know how broke I am.” ...

None of these make it easy to talk about what you’re going through — or have hope that someone will understand. However, there is help available.

Those are impressive percentages. In my experience in working with college students seeking graduate programs, I have often encountered the issue of debt and its impact on the lives and psyches of these young people. Thus, I’m not surprised by the numbers brought forth in this study. Accordingly, what can be done about this?

What to do about student debt stress

Financial stress can create a vicious cycle. Debt causes fear. Fear causes loss of sleep and poor job performance, which in turn creates worry about job security and paying the bills, causing the cycle to repeat.

- Take the first small step

 Psychologist Dr. Susan Chanderbhan explains the best thing you can do is to take one small step:

 “The more you avoid facing it, the bigger it gets. And in taking that first step to face it, we often find that it’s not as bad as we feared. Taking that first step helps us feel more in charge of our lives, more in control.”

- Factor your loans into your life plan

Clinical psychologist Dr. Nancy Irwin speaks to the power you can achieve when you do take control, whether taking control involves creating a new student loan payoff plan, finding a therapist to talk to, or a combination of these and other moves. According to her, this can change your mindset and your results:

 “Assertive, powerful people factor student loan debt into their overall life plan, feeling grateful that they were able to get an education and embark on a career that is meaningful. Give yourself a break, and remind yourself that you chose to go to school and get a higher education for some important reasons. Review them regularly and focus on your mission.”

- Utilize financial tools

 Once you’ve gotten a handle on some of the psychological effects of debt, here are a few steps to take to regain financial control:

If you’re making payments regularly and in a stable career, consider refinancing your student loans at a lower interest rate to lower your payments or shorten your repayment period.

If you’re struggling to make your payments and have federal loans, use an income-driven repayment plan to decrease your payments and eventually qualify for forgiveness. 

Whether your loans are federal or private, you might be able to use deferment or forbearance to pause your payments temporarily.

There’s much more to this enlightening survey. I’ve just skimmed the highlights. I urge you to review the entire article.

From my personal, non-study perspective, then, there appear to be three lessons:

1. Try to avoid “easy” financial aid. That is, don’t choose to borrow easily and quickly available funds when other options may be available, such as merit-aid scholarships, family resources and even part-time work. The classic claim “I worked my way through college” is sometimes both reasonable and attainable.

2. Be alert for signs of depression. While in college, if you find yourself losing interest in your work, your well-being and your social life, seek out campus resources, such as mental health counseling, which may be able to help you pinpoint the sources of your downturn. There is no shame in seeking help for an increasing case of the blues.

3. Consider cost-effective higher education. One way to bypass the consequences of heavy student loan debt is to take a path that leads through lower-cost schools. Starting at a community college and then transferring to a public university can save many thousands of dollars and perhaps even eliminate the need for loans altogether. You don’t need to pay for a $60,000 to $75,000-per-year college to be successful and happy in life!