Spoiler alert: Having education debt isn’t always a bad thing.
But six months out, working part time at an educational nonprofit, I realized that I wasn’t quite done with school. I returned to the same university in Lebanon at which I’d applied my undergraduate stipend. But this time, as a graduate student, I didn’t get a full ride. Because the school was an American university, I had the advantage of borrowing from the federal government to help cover my tuition.
Two and a half years later, I graduated with an MA in Middle Eastern studies and $37,000 in federal Direct Unsubsidized Loans. A growing pile of debt can feel like a burden, but it’s helped me take the leap into full-time adulting in five clear ways — for better or worse.
1. Living abroad gets a lot harder
Always dreamed of teaching English in Korea? Unless you have serious financial support back home, you might not be able to. That’s because living abroad can be particularly challenging when you’re repaying a lender back home, potentially deterring you from that mind-opening, life-changing experience you’re otherwise able to afford.
To pay off student debt from another country, you might be left relying on money transfers or family to make repayments. Your options for repayment plans could also be limited.
International money transfers might be your only way to repay
Gone are the days of expensive, complicated international money transfers, what with digital money specialists offering easy transactions from your phone. But not all countries are supported by the cheaper online services.
I was working as a news editor in Lebanon when my student loan repayments kicked in. I still had a US bank account, but I couldn’t deposit money into it. While I’d planned to open an account with the bank my employer used for direct deposits, when I finally sat down with a banker, she told me that transferring money could take as long as 30 days to go through.
“It’s not worth it if you just need to pay your student loans,” she said. “Do you still want to open the account?”
If I’d known it was going to be so complicated, I might have stayed in the US after I graduated. I Skyped with my parents that evening, and they agreed to cover my student loan repayments while I was away, allowing me to pay them back on my next visit.
I was lucky again: If my family had refused to help out, I might have been forced to cut my stay short.
Income-based repayments are off the table
I took a job in Lebanon shortly after graduation. But because I didn’t have a Lebanese bank account, my employer paid me in cash. This and the fact that I was working abroad ruled out a more affordable federal repayment plan: income-driven repayments.
Four types of federal income-driven repayment plans allow for repayments over 20 or 25 years that are based on your monthly salary. The government forgives what remains of your principal after your term is up. They can be your most affordable option if your job comes with low pay, and you’re also eligible for Public Service Loan Forgiveness (PSLF) after you’ve made 120 repayments.
However, these plans require a lot of paperwork and time each year to detail your income and other expenses. As a copy editor abroad, I didn’t have the documentation to qualify, even though I was on a work visa. My only chance for affordable repayments was signing up for a graduated extended repayment plan with a 25-year term. This type of plan allows for small repayments that slowly increase every two years — hopefully, along with your salary.
Affordable in the short term, sure. But I was slated to pay more in interest than the loan amount I’d borrowed. Despite consistent, on-time repayments, I carry more debt today than I started out with because my first years of repayments didn’t fully cover the interest adding up.
2. Your career options can be limited
The first job you get out of college doesn’t necessarily set your career — otherwise, I’d be teaching Arabic to kindergartners instead of writing about loans. But after your second, third or fourth job, a pattern starts to form. As you become skilled in one area, leaping onto another career path becomes impractical.
Student debt can influence these early choices and profoundly affect your career. For instance, I liked my job in news, but it wasn’t sustainable. My student loan repayments were set to increase after two years, and I only scraped by on my copy editor’s salary. I eventually quit my job and moved back to the US just before the jump in my repayments.
Once home, I found a job in my field that paid enough to cover my repayments. Many people aren’t so fortunate: A friend of mine went to law school hoping to work as an immigration lawyer but ended up taking a private-sector job to afford the repayments on her $100,000 loans.
3. Getting a credit card can be easier
Credit scores are a necessity to a fully functioning adult life in the US. They’re primarily based on your record of repaying debts on time — a main factor that lenders and credit card companies look at when deciding whether to approve you for credit or a loan.
Paying off my student loans helped me build a credit history that otherwise would have been nonexistent — and at a relatively low rate for a first-time borrower. I pay just over 6% in interest on my student loans, which is far lower than the rates on loans I’d qualify for with no credit score.
After a few years of steady, on-time repayments (thanks, autopay), my credit score was high enough for me to qualify for a travel credit card. One that’s helped me save: I apply the points I earn with my card toward a MetroCard every few months. And I avoid foreign transaction fees when I travel, which can add up over a long time away.
4. Finding an apartment can also be easier
A credit score isn’t good only for getting a credit card. It also made it easier for me to find an apartment when I moved back home to New York City. Used to landlords that rarely asked for my ID back in Beirut, I was surprised to find a minimum credit score listed as a requirement for tenants — even on Craigslist.
And it’s not just landlords who asked about my credit score. A few sublets I looked at also required a minimum credit score. I would have had to find a guarantor if I hadn’t yet built a credit score thanks to my student loan repayments.
5. Getting a low-interest personal loan can be difficult
While your credit score is important, it’s not the only factor lenders consider when you’re interested in taking out a personal loan. Having a lot of debt in your name can affect your ability to get a competitive deal.
While I’ve never needed a personal loan, I write about borrowing all day. And I often wonder: Could I qualify for this?
One day while researching a lender with particularly competitive rates and terms, my curiosity got the better of me. It based its offers on a soft credit check that doesn’t show up on your credit report, so I filled out the prequalification form to see what’d happen next.
My credit is excellent, and my debt-to-income ratio is low. So I was surprised to get notice that I wasn’t eligible, but I had to receive a letter in the mail to learn why.
Student debt can cause a high credit utilization ratio
The letter arrived about a week later. The culprit for my loan ineligibility? My credit utilization ratio. This ratio represents the amount of credit you have access to — like your credit card limits — against the amount of credit you’re actually using.
It’s the second most important factor in your credit score, just behind on-time repayments. But lenders often look at it separately from your credit rating. My student loan balance was high enough to dwarf my $7,500 credit limit, rendering me ineligible for that personal loan.
Student loans with shorter terms can cause high DTI
A debt-to-income (DTI) ratio measures your monthly bills against your monthly income. Lenders look at this number to make sure you’re able to afford another monthly bill. Anything under 43% is acceptable, though you might not get a competitive deal if yours is above 20%.
Thanks to my very long-term repayment plan and the fact that I lived rent-free with my parents, my DTI hovered around 6%. But if I’d chosen a shorter repayment term to save on interest over the life of my loan, my far higher DTI could have caused another strike against me. It also could have contributed to being rejected for a credit card — or at least approved for a lower limit and higher rate.
Beyond helping you earn that degree, student debt can affect your life in surprisingly positive ways after graduation. It allows you to build your credit history while paying lower rates than you’d find with other types of borrowing, for instance, even with a cosigner. But it can limit your future plans, taking some career options off the table and keeping you from experiencing other parts of the world.
You may be able to make adjustments to your student loan repayments that allow for more financial wiggle room — such as switching repayment plans or refinancing. Learn more about how to borrow for your education with finder.com’s guide to student loans.