Psychological Impact of Debt on Millennials

Debt from students loans is a real crisis in America, and that it sucks. (If you want more information on how the student debt crisis happened, though, you can check out The Real College Debt Crisis by William Elliot III and Melinda K. Lewis or Ground Zero: Crisis in Higher Education by Theresa Neimann and Uta Stelson.) By now, the pattern of older generations bemoaning millennials’ lack of work ethic is basically a cliché, and millennials responding that their generation has to start adult life at a severe financial disadvantage – due almost entirely to student debt – compared to their parents’ generation is becoming increasingly recognized as a valid rebuttal.

What you might need someone to tell you, though, is that you are not alone if you feel like your student debt has crossed over from being just a financial problem to being a psychological or even physical problem. Forbes reports that as of January 2016, “43% of borrowers who hold student loans are either behind on their payments or simply not making them at all.” Whether you’re on track with payments or not, this enormous burden takes its psychological toll.

The Not-So-Good News: Student Debt and Psychological Health

Recently, there have been a slew of studies aiming to find out if there is a connection between high student debt and poor psychological health, and the results have been an unambiguous “yes.” To name just a few:

• According to The Atlantic, a 2013 Northwestern University study found that “higher levels of relative debt – that’s relative to household assets” led to subjects reporting “higher levels of stress, depression, and poorer self-reported general health.” The study even found evidence of physical effects as well: “Feelings of significant indebtedness also raised diastolic blood pressure, which can increase the risk of hypertension and stroke.”
• A 2014 Gallup study investigated the connection between student debt and five elements of well being: purpose, social, financial, community, and physical. “It found that Americans who graduated with $50,000 of student debt between 1990 and 2014 experienced a decline in four out of five elements.”
• The University of South Carolina published a report in 2015 that presented the results from a survey of 4,600 25-31 year old students and recent graduates. According to Generation Progress, “Their conclusion was that students with more loans were more likely to experience depression and stress due to the anxiety of carrying tens of thousands of dollars in debt.”

If you’re one of the millions of current students or graduates carrying this financial and psychological load, you can probably guess the reasons that experts hypothesize for why high student debt correlates to lowered mental and physical health. It’s more than just the burden of having to make payments. It’s the constant feeling that you have to keep deferring other big life milestones while you do so.

Want to buy a car or a first place?

Student debt makes it difficult.

Trying to plan a wedding?  or have kids?

Student debt makes you have to keep postponing.

Trying to take your time to find the job you really want rather than any old job that will give you a paycheck?

Student debt is there on your shoulder telling you that you can’t afford to do that. Even smaller “splurge” purchases like a new wardrobe item or, hell, even a latte addiction, are always accompanied by a side dish of guilt.

 The Much Better News: Change Your Mindset, Change Your Health

This is not a financial advice blog, so I’m not going to give you a five or ten-year plan to be debt free (Try this is that’s what you need.). But there are 2 very important things you can do to care for your own mental health during the student debt struggle that will very likely end up benefitting not just your psychological health, but your bank account as well.

Face the numbers, don’t avoid them.

Given how grim the actual totals of student debt are for many people, let alone the complicated morass of interest rates and refinancing/repayment plans, many millennials choose to live in ignorance of the finer points of their debt. Forbes reports that a Citizens Bank survey of recent college grads revealed that 45% of respondents didn’t know what percentage of their salary went to loans, 37% didn’t know the interest rates of their loans, and 15% didn’t even know the total that they owed.

Be proactive.

Avoidance might feel less overwhelming, but the truth is that the unknown is always scarier and worse. If you don’t know the actual numbers behind your debt, it’ll be difficult to find the best and fastest way to get rid of it or to make plans for your future based on a realistic timeline of repayment. As Melody Wilding puts it, “Information can actually be a stress reliever because it puts the worst-case scenario that’s keeping you up at night into perspective. It robs worry of its power over you.”

Keeping yourself in ignorance about the details of your debt will only foster the illusion that it’s something so big you can’t do anything about it. Which bring us to…

Ditch the scarcity mindset and embrace a growth mindset.

A scarcity mindset can develop when you start concentrating so much on protecting what you have that you miss opportunities to improve your situation. It’s like having blinders on where all you worry about is money, and that obsessive worry, while it might feel like being responsible, actually creates a desperation in you that makes you willing to accept short-term solutions instead of seeking out more profitable long-term solutions. (See this great NPR interview with an expert on scarcity mindset for more on this.)

Having a growth mindset, on the other hand, allows you to actively look for ways to expand your possibilities and improve your life, not just to survive. Dr. Carol S. Dweck, the foremost writer on growth mindset, explains growth mindset as “a belief that your qualities can be cultivated.” In other words, who you are is up to you rather than set in stone at your birth. While growth mindset is frequently used to discuss things like intelligence or personality, it can also apply to your financial life.

If you believe that your financial limitations from student debt will dictate your entire life and start to get obsessed with them, you will develop the blinders of a scarcity mindset. But if you believe that proactive decisions on your part can influence student debt, then you’ll start seeing opportunities where you can take financial agency for yourself.

Sometimes, developing growth mindset about your finances is easier said than done; obsessing over money can feel like the responsible choice, the kind of choice that adults make to stay out of financial trouble. Ultimately, though, the scarcity mindset only sets you up for short-term solutions rather than the kind of long-term financial health that a growth mindset can help you develop.

If you want to learn about what you can do to foster a growth mindset about your financial health, you can call us at (305) 501-0133 or schedule a free 20-minute Clarity Consult to learn more about reducing the negative psychological effects of student debt.