By Alaina Trivax, WCI Columnist

My generation, the avocado-toast-eating millennials, often talks about our student loan debt in what seems like the same way that previous generations talked about their mortgages.

I remember overhearing my aunts, uncles, and various family friends compare mortgages and mortgage rates when I was a teenager. It wasn’t the amount they were talking about—at least, it didn’t feel like they were competing over who had the biggest/best/most expensive house—as much as it was a comparison of the length of time until they’d be free from their mortgage payment. I’d hear things like, “Just 10 more years, and we’ll have the place paid off,” or, “We’re thinking we’ll use some of the inheritance from Uncle Bob to pay it down a bit.”

The conversations I’ve had as an adult with friends about our student loans sound very similar to those chats I’d overheard as a kid. Especially in my 20s, when I talked with friends about student loans, it was assumed that everyone had them, that they were a burden on our budgets, and that you’d keep paying them for a long, long time. We’d complain about how, “I’ll be paying these for the next 20 years,” and, “These student loans are the reason I can’t buy a house.”

My experience with student loans changed in a few ways when I married my husband. First, my student loan burden increased tenfold. Brandon, my husband, is a partner in a private practice PM&R group, and I work as a middle school teacher. When we got married around five years ago, we had a little more than $330,000 in combined student loans. Today, we’re down to about $70,000 and on track to have the balance paid off by the end of 2024.

 

Everybody’s Got Them (Student Loans)

I earned my undergraduate degree at a private (read: expensive) liberal arts school. My financial aid package of federal grants and scholarships helped reduce the expense, but I still graduated with more than $30,000 in student loan debt. As a student, it seemed like all of my friends had loans. Taking out student debt was just the thing you did to go to college. Like me, my friends planned to pay them off as they could.

I pursued a master’s degree at a state university and went into teaching, figuring I’d make lots and lots of money and could pay off my loans easy-peasy. (Obviously, I'm kidding.) Most of my friends from undergrad also pursued a secondary degree and then entered a public service-type job. We all had student loans, and it was just the norm.

Was it a good thing that it was so expected to have student loans? Probably not. It made the reality of the debt we each signed for a lot fuzzier—especially in those first few years out of college and before we had a meaningful understanding of how money worked. We’d often commiserate about our student loan payments and how much they were taking out of our budgets. We’d talk about how we’d all be paying them for the next 20 years. Certainly, none of us could afford a mortgage on a home. We all rented and shared our apartments with a roommate or two to help reduce costs.

med school scholarship sponsor

My husband accrued quite a bit of debt while pursuing his medical degree, too. Though he was a few years out of undergrad, he says he doesn’t think he was mature enough to sign for that much debt. When you’re a college or medical student, it’s hard to understand the impact loans will have on your future financial situation. You want this degree. You have to pay for it. Loans are the way you’ll do it, and lots of other people are taking them out, too. So, you sign the paperwork and figure you’ll pay it off eventually. You have no idea it means you’ll be squeezing your family of four and a dog into a 1,100-square-foot ranch home for much longer than you’d like, simply because you can’t afford a bigger mortgage payment on top of your student loan bill.

More information here:

Paying Off Spouse’s Student Loans Together

We’re (Finally) Broke! Why Being Worthless Feels Amazing

 

Student Loans vs. Mortgages

According to Pew Research Center, “the share of young adult households with any student debt doubled from 1998 (when Gen Xers were ages 20-35) to 2016 (when millennials were that age). In addition, the median amount of debt was nearly 50% greater for millennials with outstanding student debt ($19,000) than for Gen X debt holders when they were young ($12,800).” More millennials have student debt than previous generations, and the amount they owe is greater than the average student loan burdens in the past.

Forbes claims that “millennial homebuyers are waiting longer to buy a first home than previous generations. Due to the effects of the Great Recession and rising student debt, millennials have been slower to buy their first homes than older generations.”

It seems clear that student loan burdens are impacting the lifestyle and net worth of younger generations, including by hindering their ability to purchase a home. But are they equivalent? Although both are a common consumer debt, mortgages and student loans aren’t quite comparable.

 

They're Not the Same

The student loan process is a little like a circular loop of Monopoly money. You take out this absurd amount of debt. Then, after almost a decade of school and training, you start earning a similarly absurd amount of money. But a huge percentage of this money has to go to paying down the debt that enabled you to get to a point where you’re earning that money anyway.

A medical school degree—or any degree, really—is a continually depreciating investment.

You’ve got the credentials now, but you still have to invest time and money into maintaining your expertise. The debt feels enormous, and the money doesn’t feel real. And, unlike a mortgage, you don’t even get a house for it all! Instead, you’ve earned a degree that becomes less and less valuable as time goes on. With a mortgage on a home, though, there are protections against lenders setting low payments that result in the principal growing over time as interest is compounded into the initial loan. With some income-based repayment plans for student loans, the payment doesn’t even cover the interest, and the balance keeps adding up. Unlike with a mortgage, you’ve got to be sure you’re making a sufficient payment toward your student loans to ensure the principal will actually decrease. The minimum payment identified by your lender might not be enough.

The refinancing options for mortgages and student loans don’t operate quite the same either. Mortgages and some student loans can be refinanced to take advantage of decreasing interest rates. Federal student loans, specifically, cannot be refinanced with the government—instead, you’ll have to refinance with a private lender to get your lower interest rate, and in doing so, you will lose the federal loan protections and eligibility for student loan forgiveness. During my husband’s out-of-state fellowship training, for example, we had a difficult time affording our mortgage and his rent, along with the minimum student loan payment set by the government. To get through the year, we refinanced all of his student loans with a private lender that offered us a $100 per month minimum payment until he completed his training. The principal grew, but what were we going to do? There was not the same flexibility available to us with our mortgage.

Likewise, interest rates aren’t calculated equivalently. I remember feeling a little excitement when I took out my first student loan with a private lender. The naivety, I know! It just felt like such a grown-up thing to do. My local credit union offered me an interest rate of around 6% in 2012. Interest rates were very low in the early 2010s, and a rate of 6% was exceedingly high. Student loan interest rates are generally higher than those of mortgages, and though I wasn’t in the market to buy a house, I probably could have gotten a home loan at a lower rate.

And, of course, mortgages and student loans are treated differently in cases of bankruptcy and death, too. Mortgage debt can be discharged through bankruptcy, though in death it becomes a part of the estate. Student loans are rarely dismissed through bankruptcy. In cases of death, it depends on the lender; federal student loans and some, but not all, private loans are discharged. The policy of dismissing the debt upon the borrower’s death was a major criterion for me when we refinanced my husband’s medical school loans. We don’t plan on him dying, but I wanted the additional protection just in case.

More information here:

Rolling Student Loans into a Mortgage – Should Doctors Do This?

With Our Expanding Family, We’ve Had to Break Our Financial Plan – Twice

 

What We’re Doing About It

student loans vs mortgage

We’ve been aggressively paying down my husband’s medical school loans for the past three years and hope to be done with them within the next year. Adding two kids to our family increased our expenses quite a bit, and after maxing out our 401(k) accounts, hitting our other savings goals, and then making our student loan payment, that annual income doesn’t stretch quite as far as we’d like. We’re staying on track, though, and working to get these loans gone as quickly as possible.

 

Student loans are not the new mortgage, no matter how we talk about them. They’re a depreciating investment, and they’re managed differently by the government and financial industry at so many points of the process.

In our case, as soon as we have my husband’s shiny degree all paid off, we’d like to start looking for a new house. We just can’t have both—the big mortgage and the giant student debt payment. Even though it feels like everyone has them, we are beyond ready to be done with our student loans. We’ll take on more debt, but at least we’ll get something for it.

 

If you're thinking about refinancing your student loans, there's no better place to do it than through one of our partners.

** White Coat Investor accepts advertising compensation from these companies. Page order does not guarantee best possible rate and terms.
† Bonus includes cash rebates and value of free course. Borrowers who refinance more than $60,000 in student loans using the WCI links will be enrolled in The White Coat Investor’s flagship course, Fire Your Financial Advisor for free ($799 value). Borrowers will still receive the amazing cash rebates that WCI has negotiated with each lender. Offer valid for loan applications submitted from May 1, 2021 through May 31, 2024. Free course must be claimed within 90 days of loan disbursement. To claim free course enrollment, visit https://www.whitecoatinvestor.com/RefiBonus.

 

[Editor's Note: News recently dropped that the annual certification for income-driven repayment plans is postponed. Borrowers were supposed to begin recertification in March and now it is delayed until November. Here's what you need to know. For those who were required to recertify before March 2024: if your payment went up from a recent certification, your payment will be lowered back to what you were previously paying. If your payment decreased, it will stay the same. If you haven't recertified yet, your payment will stay the same for now. Your certification date will be November 2024 at the earliest. For those who were required to recertify from March 2024 to September 2024: Your income certification date will be delayed by a year. For those who were required to recertify in October 2024 or later: Your income certification date won't change.]

Can you relate to this at all? Do you talk to your friends and colleagues about your student loans? Do you feel stuck in the same boat? How can you break free? Comment below!