The Secret Price of Student Debt

Abstract

The Student Borrower Protection Center and Credit Builders Alliance examined how borrowers with different levels of student debt repay common financial products—credit cards, mortgages, and auto loans—to determine the added cost to each borrower for owing student loans. Specifically, this analysis breaks down the additional price a borrower with moderate and high student debt burdens will pay for these credit products compared to a borrower with lower or no student debt burden.

In this study, a borrowers’ debt burden was calculated using student loan debt-to-income ratios, meaning the portion of a borrower’s income going towards their student loan payment. A high ratio indicates a high student debt burden. The cost of the credit products was based on publicly available information regarding the average repayment term and balance of the products.

Key findings include:

A typical borrower could pay $29,000 in extra charges. An individual with a high student debt burden could pay as much as $29,000 more in total over the repayment term for a typical auto loan, mortgage, and credit card compared to the same borrower with a lower level of student debt stress. A borrower with a moderate student debt burden would pay more than $11,000 in extra charges for the same package of credit products.

A borrower experiencing financial strain during the pandemic shoulders an even bigger added cost. Research shows that families rely on credit card debt to weather economic shocks, including job losses and unexpected bills. As the pandemic drives unprecedented levels of unemployment, an individual with a high student debt burden could pay tens of thousands of dollars in additional charges compared to the same borrower with a lower level of student debt stress. Compared to a typical borrower with a high student debt burden, a borrower experiencing financial strain who is also shouldering a high student debt burden would pay hundreds of dollars more in credit card interest charges alone, making it harder to cover basic needs.

A borrower with lower credit use could still pay more than $13,000 in extra charges. A borrower with lower-than-average auto, mortgage, and credit card debt but a high level of student debt stress could still pay $13,000 more across this bundle of credit products than the same borrower with a low student debt burden.

Vulnerable borrowers pay the biggest price on other credit products for their student loan debt. Hidden costs are greatest for borrowers forced to take on bigger student debt burdens — leaving low-income borrowers, women, and borrowers of color to pay the biggest price across their financial lives. In addition, public service workers, like teachers or social workers are also at higher risk of being hit with greater hidden costs due to their high debt burden in relation to their income. Further, this secret price may contribute to widening economic and racial inequality, as borrowers are less able to build wealth.