After you pay your rent and student loans, does it ever feel like you have almost nothing left?
It’s not your imagination.
And when you add student loans into the mix, the numbers are staggering.
The rising number of people who are cost-burdened
Have you heard of the 30 percent rule? It says you shouldn’t spend more than 30 percent of your income on housing.
If you do, the Department of Housing and Urban Development (HUD) considers you “cost-burdened” — meaning you might have difficulty paying for other necessities like food, clothing, transportation, and medical care.
If more than 50 percent of your income goes toward housing, you’re considered “severely cost-burdened.”
Although it’s not flawless, the 30 percent rule provides an interesting way to compare regions and see how things have changed over time.
An example: According to Hunt.com, less than a quarter of people were cost-burdened in 1960; today, more than half of renters are.
How student loans factor into the equation
Going a step further, the report’s authors analyzed each region’s average earnings (for renters aged 25 to 34) and rental costs (for one-bedroom apartments). Although they acknowledged many borrowers don’t live in one-bedroom apartments, it provided an easy cross-country comparison.
And what stuck out most was how much student loan payments impact today’s renters.
Without student loans, here’s how many average college graduates are at risk of being:
- Moderately cost-burdened: 33 percent
- Severely cost-burdened: 11 percent
Add monthly student loan payments, and here’s how those numbers change:
- Moderately cost-burdened: 59 percent
- Severely cost-burdened: 13 percent
You can see it even better in the maps below. Without student loans, only about 18 percent of U.S. counties’ borrowers are cost-burdened. But with student loans, that number jumps to nearly 72 percent.
How to balance loans and rent if you’re cost-burdened
Those are some crazy numbers. Although I wouldn’t put much stock in the exact figures, as they reveal only how many borrowers are at risk, they show how many people are struggling to afford housing and student loans.
If you’re cost-burdened, here are a few steps you can take to get your bills under control.
1. Negotiate with your landlord
If your landlord is a reasonable human, you might be able to negotiate your rent.
You’ll have to offer something in return. Perhaps you could sign a two-year lease or do yardwork and light repairs. Argue your case using comparable rates from your neighborhood and evidence of your excellent rental history.
After all, you’ll never know if you don’t ask.
2. Buy a house
It sounds crazy, I know. You can’t afford your bills, but buying a house is a good idea?
Of course, becoming a homeowner comes with a slew of unexpected costs, and the decision shouldn’t be taken lightly. But when you own a property, you can make money off it by finding a long-term roommate or renting out a room on Airbnb.
If saving up for a down payment seems impossible, look into programs for first-time homebuyers that offer assistance.
3. Increase your income
A surefire way to decrease the percentage you’re paying toward bills is increasing your income.
Although it’s easier said than done, it isn’t impossible. You could ask for a raise in your current position, look for a new job, or start working a side gig.
4. Sign up for an income-driven repayment plan
If you’re struggling with your student loan payments each month, it might be time to sign up for an income-driven repayment (IDR) plan.
These plans stretch your repayment term to between 20 and 25 years, which means your monthly payments could drop significantly. Although an IDR plan provides immediate relief, it also increases the interest you’ll pay over the lifetime of the loan.
If you earned $40,000 per year and had $30,000 in loans at a 5.70% average weighted interest rate, here’s how things would shake out:
- Standard repayment plan: You’d pay $328 per month, totaling $39,360 over 10 years.
- Income-Based Repayment (IBR) plan: You’d pay $183 per month, totaling $47,627 over 25 years.
Keep in mind that your payments will increase with your income too. To run your own numbers, try our Income-Based Repayment calculator.
5. Refinance your student loans
If you’re earning a high income but never see it because you’re living in a high-rent city, then refinancing your student loans might be a good choice.
Borrowers with high incomes and high credit scores often can obtain a lower interest rate — and a lower monthly payment.
Let’s say you have $75,000 of loans at a 5.70% average weighted interest rate. If you were able to refinance at a 3.00% interest rate, your monthly payments would drop from $821 to $724, and you’d save $11,663 in interest over 10 years.
Remember, though, that refinancing means you’ll no longer be able to access federal IDR or loan forgiveness programs. To check your numbers, try our student loan refinancing calculator.
If you feel cost-burdened, remember there are ways to fight back. Reduce your expenses, maximize your income, and create the breathing room you need. Then, hopefully, you can prove the statistics wrong.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.99% – 5.64%1||Undergrad & Graduate|
|1.89% – 5.90%2||Undergrad & Graduate|
|2.25% – 6.09%3||Undergrad & Graduate|
|1.89% – 6.77%4||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
|1.99% – 5.41%5||Undergrad & Graduate|
|Check out the testimonials and our in-depth reviews! |
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 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% 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 July 31, 2020, 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 7/31/2020. 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 protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2020 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
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 10, 2020.
5 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. 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 0.16% effective August 10, 2020.