It’s no secret that student loan payments pose a financial challenge for many consumers, but new research shows that for many families, they take up more of the monthly budget than some day-to-day household needs.
A JP Morgan Chase research group conducted a study to find out how much of a burden student loans is on the average family. To come up with their data, it looked at the financial records for 4.6 million families with Chase accounts who had made at least one student loan payment.
The median results showed that a typical family pays $179 per month on student loans, which is about 5.5% of its take-home pay. And for about a quarter of families, student loans eat up more than 11% of their net earnings, which is more than the average costs for such necessities as gas or out-of-pocket healthcare costs.
For low-income families and young adults who haven’t yet reached their full earning potential, student loan payments are an even heavier burden. Approximately 1 in 4 respondents under 25 spends at least 16.8% of their take-home pay on student loans. Likewise, a quarter of families who earn a gross income of $50,000 or less per year were found to spend at least 14.7% of their net earnings on student loan payments.
The weight of student loan repayment has also caused many consumers to skip payments. Only 54% of families make student loan payments consistently, the research found. And 20% make student loan payments two-thirds of the time or less.
Some of this was tied to financial difficulties — about 30% of families who stopped making payments on student loans also experienced a 10% or higher drop in median take-home pay around the same time.
Similarly, student loans payments fell by 7% among those who experienced a job loss, while the percentage of those making student loan payments dropped 27% after unemployment benefits expired. And once those unemployment benefits expired, consumers were more likely to make payments on their credit cards, auto loans and mortgage loans than they were on their student loans.
Coming up with a plan to pay off your student loans as fast as possible can make all the difference in whether you are able to reach all of your future financial goals. However, take the time to understand how your loan program works so you can take advantage of any available benefits. For example, if you have federal student loans, you may qualify for an income-driven repayment plan, such as Income-Based Repayment (IBR), which limits your monthly payment to a portion of your discretionary income. That could make all the difference in your ability to stay current on your loans.