Want to be happier? Paying down your student loan debts could help, according to a recent study from Purdue University.
Money is a major source of stress for Americans. In fact, money is the most common source of stress for American adults, according to the American Psychology Association’s Stress in America study released earlier this year.
Debt, in particular, can increase stress and hurt overall well-being, the Purdue University study found. In fact, college graduates without student debt are almost as likely to be happy as those with the highest incomes.
In other words, paying off student loans can make you happier — as happy as if you’d just been given a pay raise.
Student debt tied to stress and depression
“But few studies have examined whether debt can detract from happiness,” Tay explained.
The Purdue study found that debt commonly has significant, negative effects on well-being. These effects are more prominent with higher debt levels, lack of financial resources, and certain sources of debt.
The study also surveyed college graduates about their debts, income, and well-being. The results show higher incomes are tied to better well-being and life satisfaction.
Debt, on the other hand, correlates with more stress. And an overall worse sense of well-being.
“We found that carrying student loan debt is almost as important as income in predicting financial worry and life satisfaction,” Tay said.
Therefore, decreasing student loans will make you about as happy as getting a pay raise.
“We are speculating that part of the reason that these types of loans are so stressful is the fact that you cannot defer them, they follow you for the rest of your life until you pay them off,” said Katrina Walsemann, the lead author of the University of South Carolina study.
Student loan stress can also worsen your work performance.
A survey from the Society for Human Resource Management found that financial stress had a negative impact on workers’ performance and productivity. Two-thirds of employers say their workers are struggling with debt, the most common source of financial stress identified in the survey.
The payoffs of paying off student debt
Many student loan borrowers struggle with repayment because many of them are facing payments they can’t afford.
A recent Student Loan Hero study found that in every state, student loan payments exceeded the threshold of affordability (equal to or less than 10 percent of disposable income).
But being proactive and effectively using financial resources to pay down student debt can help. What’s more, getting rid of student debts ahead of schedule can have big payoffs for your finances, well-being, and even health.
Increase cash flow like a pay raise
Every time you pay off a student loan, you’re also getting rid of a monthly payment. So it makes sense that paying down student debts would have a similar effect as getting a raise.
Essentially without this loan payment, you’re lowering your monthly financial obligations and increasing your cash flow.
For example, for every $1,000 you save on what you originally borrowed and repaid, you have an extra $10-12 dollars in your budget each month.
That’s equal to a gross pay raise of $13 a month. Or, $158 a year.
Check out our calculator below to see how much you could save on interest when you prepay your student loans, too.
Get a guaranteed return
Paying down student debt can also be looked at as a smart investment.
Prepaying debt has a guaranteed return of helping you avoid years’ worth of interest costs. And these savings, unlike returns on a stock portfolio, are guaranteed.
Improve emotional and physical health
Of course, the well-being benefits of paying off debt are significant, as well.
Paying off debt can provide immense emotional and mental relief. It can also improve your health and immune system, and lower your risk of ailments like headaches or high blood pressure, according to Health.com.
Getting rid of debt and lessening financial stress can also help you perform better at work.
Achieving freedom from debt can allow you to focus more mental energy and willpower into your work. This, in turn, can increase your chances of earning a raise and advancing your career.
If you’re overwhelmed by student debt
Prepaying student loans is a worthy goal and one you should work towards.
But it’s also one that takes several months or years to accomplish. In the meantime, you should also focus on improving your mental health and lowering your stress.
Look ahead, one step at a time
First off, it’s important to know what’s not helpful or productive.
Feeling like a failure or beating yourself up over your debts doesn’t do anything to improve your situation. And it can increase your financial stress.
If you have student loan debts that doesn’t make you a failure, even if they’re really high. It makes you one of the 44.2 million Americans with student loans.
And maybe you’ve made some financial missteps along the way. But that’s also pretty typical and even normal. Focus on what you can do about it now instead of what you could’ve done in the past.
Don’t feel like you have to conduct a complete overhaul of your finances and debts overnight, either. Repairing your finances and building financial stability will take time.
It’s essential for you to start small, one step at a time. From making a get out of debt plan to reworking your budget, keep your efforts slow but steady. This will help you avoid burnout and create real financial change that can last.
Consider restructuring your student debts
If you are in danger of missing student loan payments or have already had issues making payments, that’s a sign that you might need to restructure these debts.
Luckily, there are a few options you can look into to help make your student debts more manageable.
Income-driven repayment plans can help if your monthly payments are too high, or your income is too low, for you to realistically pay them each month. Plans like Pay As You Earn (PAYE) can be used to reset monthly payments to match your level of income and costs of living.
And if you have decent credit, you could benefit from refinancing student debts through a private lender, like SoFi for example. You could find significant savings by securing a lower interest rate, and could also choose a repayment period that could lower your monthly payments.
Take care of your health
Responsibly managing your debts can help lower your stress and make your debts feel manageable. That is an important step to lowering stress.
But there are other effective ways to manage stress and improve well-being.
Connecting with friends and family is one of the most effective stress-reducing behaviors, according to Psychology Today. Sufficient sleep and regular exercise can improve well-being and offset stressors like student debt.
So before you begin to feel overwhelmed by your student loan debt, take stock of all of your options and support systems. Then make a plan and just take it one day at a time.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.46% – 6.97%1||Undergrad & Graduate|
|2.57% – 8.44%4||Undergrad & Graduate|
|3.05% – 6.47%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|