9 Ways Student Debt Can Derail Your Life

If you don’t repay student debt, you can suffer financial consequences

Choosing whether to pursue a higher education is no small decision. College can be expensive, and you may have to take out student loans to cover the costs. However, taking on too much student debt may lead to financial troubles if it becomes too much to handle. Below are nine ways student loan debt may adversely impact your financial health, which include making it harder to purchase a home, lowering your net worth, and hurting your credit score.

Key Takeaways

• Defaulting on your student loans may lower your credit score and lead to wage garnishment.
• Student loan debt can result in a higher debt-to-income (DTI) ratio, making it more difficult to qualify for other types of loans.
• Too much student loan debt may prevent you from saving money or investing in your future.

Delaying or Forgoing Grad School

One of the biggest benefits of having a graduate degree is potentially gaining access to higher salaries. For example, the National Association of Colleges and Employers Winter 2025 Salary Survey found that the projected starting salary for graduates with a bachelor’s degree in engineering is $78,731, while those with a master’s degree in engineering can expect to earn $94,086.

A higher salary would be great in the long term. However, if you’ve already taken on a large amount of debt to put yourself through school once, you might find that taking on additional debt to pursue a graduate degree isn’t something you can afford. As a result, you may have to delay going to grad school or skip it entirely.

When taking out a student loan, compare interest rates to see which type of loan will have a payment that best fits your budget.

Difficulty Purchasing a Home

If you have a large student loan payment that’s eating up a good chunk of your take-home pay, you may find it difficult to save for a down payment in order to get approved for a mortgage.

When you apply for a mortgage, lenders typically check your debt-to-income (DTI) ratio, which represents your total monthly debt payments to your gross monthly income. If you have a high DTI ratio, which can result from having too much existing debt, it may be more difficult to get approved for a loan.

Difficulty Renting a Home

If you have student loan payments, renting an apartment may also be a challenge, especially if you reside in an area where the cost of living is high. Landlords typically run a credit check on prospective tenants to determine whether they’ll be able to afford a monthly rent payment on top of their existing debt. As such, carrying too much debt may result in your rental application being denied.

Decreased Net Worth

Your net worth is calculated by subtracting your liabilities, such as outstanding credit card balances or a mortgage, from your assets, including cash and investments. Student loan debt is considered a liability, meaning it decreases your overall net worth until you’re able to pay it off.

Career Goals Impeded

Student loan debt may adversely impact your career goals. For example, if you carry student loan debt, you may need to prioritize a career with higher pay to afford your monthly payments, rather than working in a different field you’re more passionate about.

Adverse Impacts to Your Credit Score

As with any other type of debt, student loan debt is factored into your credit score. If you’re unable to make your student loan payments on time, it may adversely affect your FICO score, a common metric used to determine your creditworthiness. A lower credit score may mean you pose a higher credit risk, which lowers your creditworthiness in the eyes of lenders and makes it harder to get approved for other lending products, such as mortgages and auto loans.

Additionally, lenders typically charge higher interest rates when you have a lower credit score, meaning you may pay more in interest payments over the life of your loan.

Job Disqualification

Employers may request a background check as part of the job application process. Sometimes,  this can include a credit check, especially if you’re applying for a job in the financial industry.

Under the Fair Credit Reporting Act (FCRA), an employer may obtain a copy of your credit report with your written permission. While your credit report doesn’t reveal your credit score, your employer may be able to see any outstanding student loan debt, in addition to bankruptcies, tax liens, and more. You’ll want to be prepared with explanations as to how you’ll repay your debts, as otherwise the negative information in your credit report may disqualify you from a job opportunity.

Fund Seizure

If you have federally held student loans that are past due for 270 days or more, you’re considered to be in default. Defaulting on your student loans means that the federal government can seize your funds, which may include your tax refunds and future Social Security payments. You could also have up to 15% of your wages garnished until your debts are repaid.

High Risk of Default

Defaulting on your student loans can have other serious financial consequences. A default may lower your credit score and wreak further financial havoc on your life. Plus, if you default on your federal student loans, you won’t be able to take out additional federal loans.

The Bottom Line

Student loan debt shouldn’t be taken lightly. It’s crucial to understand how debt repayment can affect your finances and have a plan to feasibly repay your debt in a timely fashion. Consider your salary prospects for your chosen field carefully before deciding to take out student loans.