Three ways student loans can impact your life after graduation

When I was a kid, I assumed life followed a pretty standard path: You graduate high school, go to college, get a job, get married and buy a house — in that order. Of course, that was before the Great Recession, which forced many college grads back to mom and dad’s house, and before I understood the impact that student loan debt can have on a person’s future.

Fast-forward to (very) post-college, and I have a much clearer picture of how things go for the modern-day Millennial. If you’re like nearly 70 percent of college grads circa 2014, you have an average of $30,000 in student loan debt, and that debt is probably causing you to postpone those major life milestones you thought you’d have reached by now.

According to a 2015 Bankrate survey, 45 percent of Americans between the ages of 18 and 29 who have student loans have put off a major life event because of their debt. That includes things like buying a house, saving for retirement, even buying a car — all because they’re worried they can’t afford it.

How student loans impact life after college

1. Housing: Student loans affect your debt-to-income (DTI) ratio, which is the sum of all your monthly payments compared to your monthly pretax income. Mortgage companies look at your debt-to-credit ratio to determine how big a mortgage you can afford, and the higher your student loan payments, the less expensive house you can purchase. In some cases, you may not qualify for a mortgage at all, depending on your income — most lenders want to see a debt-to-income ratio, including all expenses (student loans, auto loans, credit card bills, etc.) of around 36 percent or lower. Many landlords also take into account your student loan debt when qualifying you for a rental apartment, so you may need to take a roommate to cut your rent in half or look at lower-priced options.
    
   Tip: To lower your monthly debt load, you may want to consolidate your student loans.
2. Saving for retirement: In an effort to more quickly pay down student loans, some college grads forego saving for retirement so they can put extra money to their student loans. This means bad news down the road. Consider this: If you start saving for retirement at 25 and put away $2,000 a year until you turn 65, you’ll have around $560,000 (assuming an 8 percent annual return, which granted, right now may seem high). All things being equal, if you wait until you’re 35 to start saving, you’ll wind up with less than half — $245,000. Unfortunately, you won’t be able to take out loans to finance retirement as you did to finance your education. So, look for any way you can to add to your retirement savings.
   
   Tip: Even if you’re facing student loan payments, be sure to set aside something for retirement. If you have a 401(k), set aside at least enough to get your company match. It’s free money you can’t afford to miss out on. 
3. Buying a car: Your DTI ratio comes into play when qualifying for a car loan, just as it does with a mortgage. If you’re facing large student loan payments each month, you may be limited on how expensive a car you can purchase, or you may need to stretch out your loan term to lower the monthly payments and pay more in interest over the life of the loan (though you can always refinance down the line, when your student loan payments are more affordable). And, as with a mortgage, if your student loan debt, auto loan payments, credit card bills, housing expenses, etc., put you over the lender’s ideal DTI ratio, you may not qualify for the car loan at all.
   
   Tip: Consider opting for a used car vs. a new car — they’re usually cheaper, so your monthly payments won’t be as high. Also think about whether you need a car at all; if you’re living in a city with access to public transit or car-sharing services, buying a car may not be worth it.

Having student loans may mean making some sacrifices, but it’s still likely worth it in the long run. Over the course of his or her working life, a college grad will make $830,800 more than a high school graduate, according to the Federal Reserve Board of San Francisco — well worth the roughly $30,000 of debt and a few years of living with a roommate and driving a used car.