Americans are stressed about affordability, as basic costs like housing and health care rise faster than wages. But how much a household feels the pinch may depend on a sometimes-hidden factor: debt.
Just over a third of U.S. adults are currently paying off a car loan or student loan, and everyone else is not. That’s a massive factor in a household’s budget.
According to new data that samples millions of consumers’ credit files from a major credit bureau, provided to The Washington Post by the Urban Institute, more than 74 million U.S. adults are carrying auto debt, with a record-high average monthly payment of $716. More than 36 million adults have student loan debt, with an average monthly payment of $316.
For the 6 percent of people who hold both those forms of debt at once, those payments often add up to more than $1,000 a month out of their budgets.
“We have all these old rules of thumb about how much your housing payment can be as a percent of your income, or how much you should be saving as a percent of your income,” said Mariel Beasley, head of research at the financial platform SaverLife. Those standard budgeting rules don’t take debt into account, Beasley said. But spending 30 percent of income on rent might be easy for a person with no debt and very difficult for someone with the same income who also has to make a $700 student loan payment every month.
“If you were lucky enough to graduate without student loans, or you were able to graduate with low enough student loans that you were able to pay them off quickly, you’re just at such a massive advantage in every other aspect of your household budget,” Beasley said.
The long list of advantages includes the ability to save for retirement. People paying off debt often skip their workplace retirement accounts and thus miss out on the extra income that their employer would match in those accounts.
In total, 36 percent of adults are currently paying off a car loan, a student loan or both. The Urban Institute data shows that about 45 percent of adults in every age bracket under 55 have one or both types of loans. The burden lessens for older adults, with 36 percent of 55-to-64-year-olds and 18 percent of people over 65 having one or both forms of debt.
U.S. adults carry many other forms of debt, too — most commonly mortgages and credit card debt, as well as home equity loans, medical debt and “buy now, pay later” loans.
The data from the Urban Institute shows the disparate impact across the country. While the average combined monthly payments on car and student loans range from $900 to $1,100 in every state for people who simultaneously owe money on both loans, the amount of debt varies, from under $60,000 in South Dakota to more than $82,000 in Maryland and $87,000 in D.C.
“If you look over time, you saw people getting more debt,” said Breno Braga, an Urban Institute researcher who analyzed the data. “The same people, even if they had the same rent or utility payments today, they’re much worse off than before the pandemic, just because now, they have a credit card to pay, an auto loan to pay.”
Student loan obligations are back after a years-long pandemic pause. For car loans, Braga’s data shows that the portion of people carrying debt has been on a slight decline, from 31 percent in 2019 to 28 percent this year. But as the price of cars has soared and interest rates have risen, the amount that debtors are paying has risen steeply.
Waverly Reynolds, 48, went back to school after having kids. In 2015, she completed a bachelor’s degree in health information systems and criminal justice. She made monthly payments on her student loans at first, but hasn’t had to pay since the pandemic loan pause began in 2020 and then her loan was paused in anticipation of joining an income-based repayment plan. Like many people, she used the temporary breathing room to take on a different form of debt, taking out a five-year car loan in 2020.
Now she knows she’ll have to pay her student loans soon. She was expecting to be able to use the Save plan created in the Biden administration, which would have put her payments at about $330 a month.
Instead, the Trump administration revoked that plan. She’s facing $700-a-month payments. “I’m terrified how I’m going to be able to afford them,” she said.
Already, she’s working a second job taking customer service phone calls for Neiman Marcus until midnight many nights, to earn about $15,000 a year on top of her $45,000 annual salary from her full-time job for a health insurance broker. She needs the second job just to cover her $2,100 monthly rent on the Texas home she shares with one of her adult sons, who is in college. “I won’t complain. I’m blessed. I feel like I do make decent money. But I’m not rich,” she said.
Earlier this year, she paid off the car loan. “I thank God every day that I have paid off my car so I don’t have a car payment,” she said. If she had to pay both the student loan and car loan at the same time, she said, she would have no idea how to manage it.
In a new report based on millions of credit records, the Century Foundation said required monthly debt payments (not including medical debt or “buy now, pay later” products) have risen nearly 15 percent since late 2022, significantly outpacing wage growth and overall inflation. For people with consumer debt, payments rose from 8.9 percent of their after-tax income to 10 percent. The share is 13.3 percent for Black workers and 10.7 percent for Hispanic workers, compared to 9.4 percent for White workers.
“People who are wealthy don’t take [loans] out in the first place. They write a check,” said Angela Hanks, who worked on the report. “It identifies the inequality that already exists, and exacerbates it. … You see the big difference in which people are taking on debt in the first place because of existing wealth inequality. And then … the debt itself drives that inequality over time as well.”
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