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 Financial Stress and Hardship
among Young Adults:
The Role of Student Loan Debt

Min Zhan
University of Illinois at Urbana-Champaign

Analyzing data from the 2018 National Financial Capability Study, this
study investigated the associations between student loan debt and finan-
cial stress and hardship among young adults. The results show that stu-
dent loan debt was positively related to all indicators of financial stress
and hardship, after controllingfor a range of socioeconomicfactors as well
as measures of financial knowledge and behaviors. In addition, minority
young adults were more likely to experience health-carerelated hardship
and higher levels of financial stress. This study further reports thatfinan-
cial literacy and emergency savings were important buffers againstfinan-
cial stress and hardship among young adults, but utilizationof alternative
financial service contributed to theirfinancial stress and hardship. These
findings inform helpful policy and practice implicationsfor improving fi-
nancial status of young adults with student loans.

Keywords: Student loan debt; young adults; financial stress; financial

hardship; racelethnicity

The student loan debt has skyrocketed in the past decades in

the United States. It has become the second largest source of house-
hold debt next to mortgages; there were 43 million student loan
borrowers and the outstanding student loan debt has risen to $1.5
trillion in 2018 (Center for Microeconomic Data, 2019; Haughwout
et al., 2019; Peterson & Robb, 2018). Even more concerning is that
many borrowers, especially young adults, face great challenges in

Journal of Sociology & Social Welfare - September, 2022 * Volume XLIX * Number 3

84
Student Loans and Financial Stress and Hardship 85

repaying their debt, as reported numbers of loan delinquency, loan

default, and bankruptcy among borrowers have sharply increased
in recent years (Gicheva & Thompson, 2015; Sullivan et al. 2019).
As such, young adults with student loan debt are more like-
ly to face additional financial challenges, given the consideration
that they are already much more financially vulnerable compared
to other age groups. As an example, the average net worth of a
household headed by a person under 35 was significantly lower
than other adult age groups (Knueven, 2020; Taylor et al., 2011),
and research also found that young adults (18-34) were more likely
to experience material hardship than other age groups under 65
years old (Karpman et al., 2018).
In this context, researchers have examined how education loans
are related to young adults' financial status, including earnings ca-
pacity (e.g., Hiltonsmith, 2013) and various indicators of wealth
accumulation, such as home and vehicle ownership, retirement
savings, as well as net worth (e.g., Zhan & Xiang, 2018). Howev-
er, limited research has explored how student loans are related to
financial hardship among young adults, and even fewer studies
have examined the associations between student loans and finan-
cial stress among this population. Building upon the existing liter-
ature, I explore two major research questions in this study. First,
is student loan debt associated with measures of financial stress
and hardship among young adults? Second, are the associations be-
tween student loan debt and financial stress and hardship different
among white and minority young adults?
This research builds on current literature in several important
ways. First, while research has examined the relationship between
student loans and financial stress among college students, few
studies have explored this relationship among young adults. This
is an unfortunate omission, because financial stress is one of the
highest sources of stress among this population (American Psycho-
logical Association, 2015; Sweet et al., 2013), and the implications
of financial stress for health and mental health are well-established
(American Psychological Association Working Group on Stress
and Health Disparities, 2017). In addition, the existing research
tends to use a single item to measure financial stress. This study
86 Journal of Sociology & Social Welfare

uses multiple indicators that capture different dimensions of finan-

cial stress, which allows a more thorough examination of financial
stress among young adults.
Second, while more studies have examined the relationships
between student loans and several indicators of financial status (for
example, wealth accumulation and income among young adults
[Fry et al., 2014; Hiltonsmith, 2013; Zhan et al., 2016]), financial
hardship has received much less attention. As a measure of ability
to meet basic needs, financial hardship is also influenced by other
factors, in addition to income and wealth (Heflin et al., 2009). Thus,
financial hardship provides a more direct and broader assessment
of young adults' financial status.
Third, previous research has not explored whether and how
the associations of student loans with financial stress and hardship
might be different for white and minority young adults. Such vari-
ations could be attributed to multiple factors, such as higher levels
of loan burden, less availability of parental economic support, lower
graduation rates, and higher rates of unemployment among minori-
ty young adults (Baum & Steele, 2010; Kerby, 2013). Thus, investi-
gating possible differential links between student loans and financial
stress and hardship among minority young adults in comparison to
their white counterparts helps develop more targeted policies and
practices to address issues of financial stress and hardship.
And finally, in addition to a range of socio-economic factors, this
study also takes consideration of financial knowledge and a range of
financial behaviors in the analysis models. Since these factors have
important influence on financial status, the inclusion of these vari-
ables helps better understand the unique contribution of student
loan debt to financial stress and hardship among young adults.

Rationales

This study builds on two major rationales: (1) propositions on

the impact of indebtedness on financial stress and hardship, and (2)
frameworks of racial inequalities. The assumption of indebtedness
helps explain why and how student loan debt influences borrowers'
financial stress and hardship, and the framework of racial inequali-
ties helps explain why student loans may affect financial stress and
hardship differently for white and minority young adults.
Student Loans and Financial Stress and Hardship 87

The propositions of indebtedness claim that household debt,

especially high levels of debt, can cause severe financial hardships
by imposing budget constrains among young adults (Sanchez

&
Zhu, 2015). Unpaid debt can also limit borrowers' ability to obtain
subsequent loans (Gruber, 2001; Nam & Huang, 2009), which may
further reduce their access to financial resources if such needs arise.
In addition, unmanageable debt and associated debt collection ac-
tions can result in high levels of stress among borrowers (Drentea,
2000). Stress, in turn, will reduce the borrowers' capacity for mak-
ing rational choices that are beneficial to their financial status.
Therefore, while student loan debt may help young adults enroll
in and graduate from college by bridging the gap between family
economic resources and rising college costs, the resulting debt may
compromise their post-college financial and emotional well-being.
The framework of racial inequalities helps explain why debt
may have differential impact on financial stress and hardship
across racial/ethnic groups. By recognizing that racial inequalities
are deeply engrained into different systems of society (Bonilla-Sil-
va, 2016; Crenshaw, 2011), it offers an analysis of how minority
borrowers may experience disproportionately higher levels of loan
burdens compared to their white counterparts.
The first factor is the marked racial disparities in income and
wealth (Addo et al., 2016; Ingraham, 2019). As a result, minority
students are less likely to receive financial support from their par-
ents (Addo, 2018; Addo et al., 2016); therefore, they are more likely
to rely on student loans to finance their higher education (Houle
&

Addo, 2018), and also encounter greater challenges in repaying the

loans (Huelsman, 2019). In addition, due to racially discriminatory
lending practices (Charron-Chenier & Seamster, 2020; Seamster
&

Charron-Chenier, 2017), minority college students are more likely

to take out private loans with high-interest rates. Moreover, racial
discrimination in labor market opportunities and economic returns
from a college degree also play an important role (Borowczyk-Mar-
tins et al., 2017; Lang & Lehmann, 2012) in additional difficulties
that minority young adults may encounter in repaying their stu-
dent loan debt.
In summary, I hypothesize that having student loan debt will
be linked to increased financial stress and hardship among young
adults because the presence of student loans may cause budget
88 Journal of Sociology & Social Welfare

constraints. I also hypothesize that student loan debt may pose

greater risks for minority borrowers because of their already vul-
nerable socioeconomic status compared to their white counterparts.

Empirical Evidence:
Student Loan Debt and Financial Well-being

Student Loans and Wealth

Existing studies have examined how student loan debt is re-

lated to different indicators of post-college financial well-being.
Studies consistently report that having student loans compromis-
es various indicators of wealth accumulation, both short-term and
long-term. An analysis of the Survey of Consumer Finances indi-
cates that average net worth (total values of assets minus total val-
ues of debt) of college-educated young adults (aged 40 or younger)
without education debt was 7 times greater than those with student
loans (Fry et al., 2014). The study by Zhan, Xiang, and Elliott (2016)
utilizes a treatment-effect model that better controls selection bias
to examine the link between student loans and multiple measures
of wealth accumulation. Their findings indicate that having out-
standing student loans upon leaving college is negatively related
to post-college net worth, financial assets, nonfinancial assets, and
value of primary housing.
Studies also projected possible long-term loss of savings due to
student loan debt. Egoian (2013) estimated that a bachelor's degree
holder with median student debt of $23,300 would have $115,096
less in retirement savings at age 73 compared to his counterpart
without such debt. By analyzing Survey of Consumer Finances
data, Hiltonsmith (2013) projected that an average education loan
of $53,000 leads to a lifetime loss of $200,000 in retirement savings,
There is also some evidence that student loan debt might be
associated with reduced ownership rates and delayed purchase
of homes and vehicles (Brown & Caldwell, 2013; Houle & Berg-
er, 2015; Shand, 2007; Stone et al., 2012). The study by Houle and
Berger (2015) finds the inverse associations between student loan
debt with home ownership status, as well as with mortgage ac-
quisition and the amount of mortgage debt, among a nationally
Student Loans and Financial Stress and Hardship 89

representative sample of young adult homeowners, but the effect

size of their findings was modest.

FinancialHardship

Studies have indicated that student loans are linked to various

measures of financial hardship (e.g., Akers, 2014; Bricker & Thomp-
son, 2016; Despard et al., 2016; Gicheva & Thompson, 2015). The
study by Bricker and Thompson (2016) indicated that households
with student loan debt were more likely to experience late bill pay-
ment and be denied credit, and they had higher payment-to-income
ratio. Gicheva and Thompson (2015) reported that more student
loan debt was also associated with higher likelihood of declaring
bankruptcy in addition to being credit constrained and more likely
to experience difficulty staying current on payments. Despard et al.
(2016) examined the link between student loan debt and more com-
prehensive measures of financial hardship among low- and moder-
ate-income households. Their study findings indicated that having
student loan debt increased the likelihood of material hardship (e.g.,
cannot afford certain types of food, late payment, etc.), health care
hardship (e.g., cannot afford to see a doctor or go to hospital etc.),
and financial difficulty (e.g., experiencing a bank overdraft, had a
credit card declined, etc.). In addition, college graduates experienced
lower odds of hardship compared to their non-graduate peers.

FinancialStress

The limited research on the relationships between student loans

and financial stress primarily focuses on college students (Archule-
ta et al., 2013; Heckman et al., 2014; Tran et al., 2018). These studies
consistently found that student loan debt was positively linked to
financial stress or anxiety among college students. The study by
Tran et al. (2018) further indicated that debt stress mediated the
relationships between student loans with health and mental health.
These and other studies on financial stress among college students
(Baker & Montalto, 2019; Britt et al., 2016) tended to use a single or
limited question to measure financial stress.
The evidence reviewed above indicates that student loan debt
compromises financial well-being among young adults. However,
90 Journal of Sociology & Social Welfare

existing research has not specifically examined how student loan

debt may influence financial stress or hardship, and how this rela-
tionship differs for white vs. minority young adults. There is evi-
dence that student loans have additional negative links with wealth
accumulation among minority young adults (Houle & Berger, 2015;
Zhan et al., 2016). Thus, it is worthwhile to explore possible dif-
ferences in the relationship between student loans with financial
stress and hardship, so that corresponding policies and practices
could be developed.

Methods

Data and Sample

The data for the study is from 2018 National Financial Capabil-
ity Study (NFCS), a triannual survey starting in 2009 funded by Fi-
nancial Investor Regulatory Authority Investor Education Founda-
tion. The participants for 2018 NFCS survey were recruited online
through three established panels in the United States: panels SSI
(Survey Sampling International), EMI Online Research Solutions,
and Research Now. The survey used non-probability quota sam-
pling with 500 samples per states (plus the District of Columbia). A
total of over 27,000 adults completed the survey in 2018. The sam-
ple for this study included 4,535 respondents in the age-group of
24-35 years (young adults), including 2,766 respondents who iden-
tified themselves as white, non-Hispanic (referred as "white young
adults" in this study), and 1,769 others (referred as "minority young
adults" in this study). Because NFCS is not a probability sampling
of the U.S. population, a table was included (see Appendix) that
compares the major demographic and socioeconomic characteris-
tics between the 2018 NFCS respondents and the 2020 Census Data.
As indicated in the appendix, educational and employment status,
household income, and age groups were comparable between these
two groups. The NFCS sample had higher proportions of females,
whites (non-Hispanic), and those who were married, and they were
less likely to have dependent children living with them.
Student Loans and Financial Stress and Hardship 91

Variables and Measures

Financial Stress. The NFCS 2018 survey includes several ques-

tions that assess a respondent's financial stress. Two measures were
created based on these questions. The first measure primarily as-
sesses how a respondent was worried about his/her financial situ-
ation. It was developed from how strongly participants agreed or
disagreed with the following statements:

1. I worry about running out of money in retirement.

2. Thinking about my personal finance can make me feel
anxious.
3. Discussing my finances can make my heart race or
make me feel stressed.

The responses for these three questions ranged from a scale of 1

("strongly disagree") to 7 ("strongly agree"). The range of the new
created variable is from 3 to 21, with higher numbers indicating
higher levels of financial stress. The Cronbach's alpha for this sub-
scale is 0.84.
The second measure mainly assesses how a respondent felt that
finances control their life and they could not move forward with
life due to financial constraints. It was developed from the follow-
ing four questions:

1. Because of my money situation, I feel like I will never

have the things I want in life.
2. I am just getting by financially.
3. I am concerned that the money I have or will save
won't last.
4. My finances control my life.

Each of these four questions was measured with a scale of 1 to

5, with higher numbers indicating that a respondent agreed more
with the statement. The range of the new created variable is from
4 to 20, with higher numbers indicating higher level of financial
stress. The Cronbach's alpha for this subscale is 0.85.
92 Journal of Sociology & Social Welfare

Financial Hardship. Young adults' experience of financial hard-

ships is measured with two broad categories of indicators. The first
category measures whether or not a respondent experiences diffi-
culty to cover their expenses and pay all their bills in a typical month
(1 = somewhat or very difficult; 0 = Not at all difficult). The second
category measures more specifically healthcare-related hardships.
It includes several questions that ask whether or not a respondent
had any unpaid bills from a health care or medical service provider
at the time of the interview, and whether a respondent had to skip
a doctor visit, medical treatment, or fill a prescription for medicine,
due to cost in the last 12 months. If a respondent's answer to any of
these questions was "yes," their hardship on healthcare was coded
as "1"; otherwise as "0."

Independent Variables

The two primary independent variables are whether or not a re-

spondent had any outstanding student loans at the time of interview
(yes or no), and a respondent's race: "white" (white, non-Hispanic)
vs "minority" (others). Actual amount of outstanding loans was not
asked in the survey, which is a limitation of this measurement.

Control Variables

Control variables include a young adult's demographic and

socio-economic characteristics, as well as a range of measures of
his/her financial knowledge and behaviors. A young adult's demo-
graphic characteristics include sex (male vs. female), marital status
(married vs. not married); and whether having dependent children
(yes or no). Their socio-economic characteristics include their an-
nual household income (less than $35,000, at least $35,000 but less
than $75,000, at least $75,000 and above), educational status (some
college education or less, bachelor's degree or above), employment
status (employed vs. unemployed), and health insurance coverage
(yes or no).
Several measures of a respondent's financial behaviors are in-
cluded as covariates. These variables include a bank account own-
ership (yes or no), home ownership (yes or no), and whether a re-
spondent set aside emergency funds that would cover the expenses
Student Loans and Financial Stress and Hardship 93

for three months, in case of emergencies (yes or no). In addition,

whether or not a respondent utilized an alternative financial ser-
vice (auto title loan, payday loan, pawn shop, rent-to-own store, or
getting an advance on tax refund) (yes or no) is also included.
A respondent's level of financial knowledge is measured with
an individual' self-reported financial knowledge: (a) I am good
at dealing with day-to-day financial matters, such as checking ac-
counts, credit and debit cards, ad tracking expenses (with a scale
of 1 "strongly disagree" to 7 "strongly agree"), and (b) how would
you assess your overall financial knowledge (on a scale from 1 "very
low" to 7 "very high"). A new measure of financial knowledge was
developed from these two variables with a range of 2-14, with higher
numbers indicating higher levels of financial knowledge.

StatisticalAnalysis

Several major analyses were conducted. First, descriptive anal-

yses were conducted to present sample characteristics by a respon-
dent's student loan status. Second, Chi-squares analyses were run
to examine how each indicator of financial stress and hardship var-
ies by student loan status of young adults. Third, regression anal-
yses were conducted to examine how student loan debt and race
are related to the financial stress and hardship, after controlling for
demographic and socio-economic variables as well as measures of
financial knowledge and behaviors. Two OLS regression analyses
were conducted on the two sub-scales of financial stress that are
continuous variables, and two logistics regression models were
conducted on the two categories of financial hardship that are bi-
nary variables.

Results

Sample Characteristicsby Student Loan Status

Table 1 provides descriptive statistics for the study sample (n =

4,535) by student loan status. About 47% of the sample (n = 2,142)
reported that they had outstanding student loan debt at the time of
the interview. Compared to the respondents without student loans,
student loan holders had slightly higher percentage of non-white
94 Journal of Sociology & Social Welfare

(40% vs. 38%), being married (50% vs. 47%), and having dependent
children at home (56% vs. 54%). Not surprisingly, student loan hold-
ers were more likely to have a bachelor's degree (47% vs. 33%), to
be employed (80% vs. 68%), and they also had higher household in-
come. A higher proportion of young adults with student loans had a
bank account (95% vs. 92%) and health insurance coverage (88% vs.
82%) but interestingly, they were also more likely to use alternative

Table 1. Sample Characteristics by Student Loan Status

Variables With Student Loans Without Student Loans

(n=2,142) (n=2,393)

Race
White 60% 62%
Minority 40% 38%
Gender
Female 58% 58%
Marital Status
Married 50% 47%
Having dependent children
Education 56% 54%
Some college education or less
Bachelor's degree and above 47% 33%
Employment Status
Employed 80% 68%
Income
Less than $35,000 28% 38%
>=$35,000 but <$75,000 37% 37%
>=$75,000 35% 25%
Having health insurance coverage 88% 82%
Receiving public benefits 34% 30%
Banking account ownership 95% 91%
Having emergency fund 45% 45%
Home ownership 46% 46%
Using AFS 46% 40%
Financial Knowledge
Good at handling financial matters 75% 72%
Self-report high financial knowledge 68% 65%

n=4,535
Student Loans and Financial Stress and Hardship 95

financial services (46% vs. 40%). In addition, a larger percentage of

loan holders reported higher levels of financial knowledge.

FinancialStress and Hardshipby Student Loan Status

The indicators of financial stress and hardship of young adults

by loan status were presented in Table 2. Overall, a large propor-
tion of young adults reported experiencing different types of finan-
cial stress and hardship. Before controlling for other factors, young
adults with student loan debt were much more likely to experi-
ence all types of financial stress and hardship compared to those
without such debt. For example, 67% of loan holders felt "stressed
when discussing my finances" (compared to 53% of those without
student loans), and 75% of loan holders reported "being anxious
when discussing my finances" (compared to 63% of those without
student loans). Similarly, 66% of young adults with loans had diffi-
culty paying bills, compared to 53% among those without student
loans.

Regressions on FinancialStress

Table 3 presents the results from Ordinary Least Square (OLS)

egressions analyses on the two broad categories of financial stress,
"worried about financial matters" and "feeling of life being con-
trolled by finances." Both models were significant and accounted
for 11% and 18% of the variance of the model, respectively.
Results indicate that, after controlling for all other factors in the
model, having outstanding student loan debt was positively relat-
ed to financial stress, in terms of both being worried about their
financial situation (b = .38, p = .000) and the feeling of life being con-
trolled by finances (b = .25, p = .000). Being a minority young adult
resulted in being more worried about their financial situation, af-
ter controlling for student loans and other variables in the model.
The interaction term of student loan and race was not statistically
significant, indicating that student loans did not have additional
impact on financial stress among minority young adults.
Among demographic and socioeconomic factors, being married
was negatively related to both indicators of financial stress; female
young adults were more worried about their financial situation
96 Journal of Sociology & Social Welfare

Table 2. Financial Stress and Hardship by Student Loan Status

With Loans Without Loans

Financial Stress

Worrying about running out 65% 55%

of money in retirement

Being anxious thinking 75% 63%

about personal finances

Feeling stressed when 67% 53%

discussing my finances

I cannot have the things in 70% 65%

life due to money situation

I am just getting by financially 78% 70%

I am concerned that the 82% 76%

money won't last

Finances control my life 80% 73%

Financial Hardship

Having at least some 66% 53%

difficulty paying bills

Having unpaid medical bills 43% 27%

Having difficulty meeting 50% 37%

health care needs
Student Loans and Financial Stress and Hardship 97

Table 3. Unstandardized Coefficients from OLS Regressions

Models on Financial Stress

Worried about Life being

financial controlled
situation by finances

Gender
Female 0.26*** 0.04
Race
Minority 0.10+ -0.06
Marital Status
Married -0.17*** -0.20***
Dependent Children 0.07 0.14**
Education
Some college education
Bachelor's degree or above -0.2 -0.10*
Employment Status
Employed 0.07 0.001
Income
Less than $35,000
>=$35,000 but <$75,000 -0.04 -0.16**
>=$75,000 -.005 -.35***
Health Insurance Coverage -0.03 -0.13*
Bank Account Ownership 0.15 0.19
Having emergency fund -0.32*** -0.62***
Home ownership 0.06 -0.01
AFS use 0.48*** 0.47***
Financial Literacy
Self-report financial
literacy levels -0.01+ -0.04***
Having Student Loan debt 0.38*** 0.25***
Race * Student Loan -0.08 0.12
R2 0.11 0.18

+p<.10, *p<*05, **p<.ol; ***p<.001

98 Journal of Sociology & Social Welfare

compared to their male counterparts, and those with dependent

children felt more controlled by finances. Not surprisingly, young
adults without a bachelor's degree, with lower-income and those
without health insurance experienced higher level of financial
stress, feeling more controlled by finances.
Both financial knowledge and behaviors were statistically re-
lated to financial stress. Higher levels of financial knowledge and
having emergency savings helped reduce both indicators of finan-
cial stress. In contrast, using alternative financial services increased
financial stress. Home ownership and bank account ownership,
however, were not related to financial stress.

Regressions on FinancialHardship

Table 4 presents the results from logistic regressions on the two

indicators of financial hardships. Results indicate that, after con-
trolling for all other factors in the model, young adults were about
two times more likely to experience difficulty in paying bills and
healthcare-related hardships. Minority young adults were more
likely to experience healthcare-related hardships compared to their
white counterparts after controlling for other variables in the mod-
el. In addition, student loan debt had additional negative impact on
difficulty paying bills among minority young adults.
Among demographic and socioeconomic factors, female young
adults and those with dependent children were more likely to ex-
perience both types of financial hardships. Married young adults
were also more likely to experience healthcare-related hardships. On
the other hand, those who had at least a bachelor's degree, who had
higher income, and had health insurance coverage were less likely
to experience financial hardships. Somewhat surprisingly, employed
young adults were more likely to have difficulty paying bills.
Both financial knowledge and behaviors were statistically relat-
ed to financial hardships. More specifically, higher levels of finan-
cial knowledge and having emergency savings reduced the likeli-
hood of experiencing financial hardships among young adults. In
contrast, using alternative financial services increased their chances
of financial hardships. Home ownership and bank account owner-
ship, however, were not related to financial hardships.
Student Loans and Financial Stress and Hardship 99

Table 4. Unstandardized Coefficients and Odds Ration from

Logistic Regressions Models on Financial Hardships

Difficulty Healthcare
paying bills related
hardships

Gender
Female .17*/1.19 .23**/1.27
Race
Minority .13/1.14 .24*/1.28
Marital Status
Married -0.48***/.62 .03/1.03
Dependent Children .51***/1.67 .46***/1.58
Education
Some college education
Bachelor's degree or above -.47***/.63
Employment Status
Employed .27**/1.31 .17+/1.19
Income
Less than $35,000
>=$35,000 but <$75,000 -.64***/.53 -.15/.86
>=$75,000 -.95***/.39 -.25*/.78
Health Insurance Coverage -.17/.85 -.52***/.59
Bank Account Ownership .21/1.24 .08/1.08
Having emergency fund -.93***/.39 -.44***/.65
Home ownership .04/1.05 -.06/.95
AFS use .91***/2.49 1.17***/3.23
Financial Literacy
Self-report financial literacy levels -.11***/.89 -.04**/.96
Having Student Loan debt .95***/2.58 .76***/2.14
Race * Student Loan -.31*/.74 .15/.86
R2 0.22 0.16

+p<.10, *p<.05, **p<.01; ***p<.001

100 Journal of Sociology & Social Welfare

Discussion and Implications

Discussion

By analyzing a recent database of nationally representative

data, this study finds that financial stress and hardship were com-
mon among young adults, which is consistent with findings from
previous studies (American Psychological Association, 2015; Karp-
man et al., 2018; Sweet et al., 2013). Different measures of finan-
cial stress and hardship were much more prominent among young
adults who had student loan debt. This is not surprising given that
many young adult borrowers had challenges repaying their loans
(Gicheva & Thompson, 2016; Sullivan et al., 2019).
The study findings provide strong support for the hypothesis
that student loans increase financial stress and hardship among
young adults. After controlling for a range of socio-economic char-
acteristics, young adults with student loans were more anxious
about their financial matters and felt that their life was controlled
by money, compared to their counterparts without student loans.
This finding shows that student loan debt is one major financial
stressor, not only among college students, as previous studies in-
dicated (Baker & Montalto, 2019; Britt et al., 2016) but also after
they graduate. This study also found that young adult borrowers
were more likely to experience difficulties in paying bills and have
health-care related hardships, which is consistent with previous
findings (Bricker & Thompson, 2016; Despard et al., 2016; Gicheva
& Thompson, 2015).
The study findings provide mixed evidence in support of the
second hypothesis, i.e., student loan debt has additional impact on
minority young adults' financial stress and hardship. While minori-
ty young adults were more anxious about their financial situations,
there was no evidence that student loans had additional impact on
financial stress for minority young adults (the interaction effects
between student loans and race were not significant). The signifi-
cant interaction between race and student loans in their influence
on difficulty in paying bills, however, indicated that student loan
debt had an additional impact on the financial hardship among mi-
nority young adults. It provides evidence that having educational
Student Loans and Financial Stress and Hardship 101

loans may further magnify the already widening financial status

between white and minority young adults (e.g., Zhan et al. 2016;
Sullivan, et al., 2019).
It is worth highlighting some of the results on the relationships
between the covariates on the model and financial stress and hard-
ship. Similar to the findings from previous studies (American As-
sociation of University Women, 2017; Karpman et al., 2018), this
study found that female young adults and those who had depen-
dent children were more likely to experience both financial stress
and hardship. On the other hand, the study findings demonstrated
the important role of a bachelor's degree, higher income, and health
insurance in improving young adults' financial status, which is
consistent with the research findings on the relationship between
student loans and wealth accumulations (Elliott et al., 2014; Grin-
stein-Weiss et al., 2016; Zhan & Sinha, 2019).
Another set of interesting findings emerging from this study
is the influence of financial literacy and behaviors. Higher levels
of financial literacy and having emergency savings helped reduce
all four indicators of financial stress and hardship, but using al-
ternative financial services increased financial stress and hardship.
The results are consistent with previous studies (Birkenmaier & Fu,
2016; Gjertson, 2014) and provide evidence that financial knowl-
edge and access to savings enhance financial well-being (Sherra-
den, 2010).
A few study limitations should be noted and may help point
to useful directions for future research. First, while the National
Financial Capability Study is a national data set, its 2018 survey
used non-probability sampling. Therefore, the study sample is
not a representative sample of U.S. population, so study findings
should be interpreted with caution, especially the findings related
to race, gender, and dependent children, because the NFCS sample
was somewhat different from the census data (Appendix) in these
characteristics. More specifically, the findings of current study did
not indicate a strong impact of race on financial hardships or stress,
as theoretical frameworks and previous research would suggest.
The lower proportion of minorities in the study sample compared
to the general population may contribute to this result. On the oth-
er hand, the higher percentages of females in the study sample may
contribute to the strong links between being female and financial
102 Journal of Sociology & Social Welfare

stress and hardships, although this finding is consistent with those

from previous research.
Second, there are limitations in several measurements that were
included in the study. For example, as mentioned earlier, amount of
student loans and detailed information on race/ethnicity were not
available in the data. In addition, information on parental economic
support, which might be an important factor that influences finan-
cial stress and hardship, was not collected in the survey. Third, this
study does not examine the possible mechanisms through which
student loans influence financial stress and hardship. Future re-
search in this direction may help develop a new knowledge base
and theoretical frameworks in this area as well as effective policy
and practice interventions.

Implications

Despite these limitations, the study findings provide new ev-

idence that young adults with student loans face marked finan-
cial challenges. Many of them fell further behind on student loan
repayment during the pandemic (Jabbari et al., 2020). While the
current federal and state student loan relief programs (Calhoun
Harrington, 2020) have provided temporary help, many borrowers, &
low-income borrowers in particular, still face dire financial circum-
stances. Therefore, more targeted loan relief programs and long-
term strategies to address student loan issues are needed.
First, this study indicates that certain groups of young adults
are more likely to encounter financial hardship and tend to have
higher levels of financial stress. More specifically, female and mi-
nority young adults, and those with dependent children, with
low-incomes, and without a bachelor's degree, are particularly
vulnerable. Given the severity of the economic impact of the pan-
demic among these groups, student loan debt burden will further
magnify economic inequalities, for example, among different ra-
cial/ethnic and income groups as previously demonstrated (Dari-
ty, et al., 2018). Therefore, these families should be provided with
larger amounts of loan relief and/or cancellation, especially given
the consideration of their economic hardship in the context of the
pandemic. In addition, given the consideration that many of these
groups (minority borrowers, for example) are more likely to be the
Student Loans and Financial Stress and Hardship 103

victims of financial fraud (Ramirez et al., 2016), it is equally import-

ant to strengthen policies that prevent fraud and abuse of student
loan services (Illinois Asset Building Group, 2017).
Second, while loan relief and cancellation programs provide
temporary help, alternative strategies to address the "root" issues
of student loan debt are needed. The cost burden of college tui-
tion has shifted more toward the student and their family in recent
decades, versus assistance from the state or federal government.
Therefore, it is critical to promote federal and state investment in
affordable higher education, thus increasing access of students to
need-based student aid and decreasing their reliance on student
loans. For example, Pell Grants are perhaps the most effective in-
vestment by the federal government in aiding college access and
success of low- and moderate-income students. However, the pur-
chasing power of Pell Grants has declined over time; therefore,
improving Pell Grants can help reduce minority and low-income
students' reliance on loans (Protopsaltis & Parrott, 2017).
The study findings also show financial literacy is an import-
ant buffer to financial stress and hardship. However, evidence
shows that young adults have lower levels of financial knowledge
and skills in general (Robb, 2011; Sinha et al., 2018) and they also
are less likely to take advantage of financial education opportuni-
ties than other age groups (McDaniel et al., 2014; Mottola, 2014).
Perhaps customizing the programs based on the diverse needs of
young adults, instead of designing/implementing one-size-fits-all
programs may help improve program participation. Given the low-
er levels of financial literacy among minority young adults (Sinha
et al., 2018), and the lower returns of financial education among
them (Al-Bahrani et al., 2019), it is even more critical to design fi-
nancial education programs that fit their needs.
The study findings further indicate that having emergency
savings helped reduce financial stress and hardship among young
adults. This is not surprising because emergency savings can help
provide financial cushion for families, especially during income
disruptions and /or when unexpected expenses arise. However,
studies indicate that many Americans, including young adults,
do not have emergency savings (Birkenmaier & Fu, 2016; FINRA
Investor Education Foundation, 2013), and many ran out of their
emergency savings during the current pandemic (Ortegren, 2020).
104 Journal of Sociology & Social Welfare

Therefore, it is important to support young adults, especially those

with student loans, to develop emergency funds to reduce their fi-
nancial stress and hardships.
On the contrary, utilization of alternative financial services
increased financial stress and hardships. However, research indi-
cates that some type of AFS use is common among the majority of
Americans, especially among minorities, young adults, and those
with low-income and lower educational attainment (Birkenmaier
& Fu, 2016). The use of AFS has further increased among low- and
middle-income population since the pandemic (Merrefield, 2020).
Therefore, support is needed for these populations so they can save
on a regular basis to avoid AFS use when emergencies arise.
Student Loans and Financial Stress and Hardship 105

Appendix:
Comparison of Selected Demographic and Socioeconomic
Characteristics of NFCS Respondents and 20202 Census Data

NFCS Census Data

Respondents (%) Data (%)

Sex
Male 44% 49%
Female 56% 51%

Race/Ethnicity
White, non-Hispanic 74% 60%
Others 26% 40%

Age
18-44 44% 46%
45-64 35% 33%
65+ 21% 21%

Married 53% 48%

Having Dependent Children 36% 40%
Bachelor's Degree or above 35% 33%
Employed 64% 64%
Median Household Income $62,500 $64,000
106 Journal of Sociology & Social Welfare

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