From Debt to Distress: What Happens When the Cost of College Diminishes Students’ Mental Health?

Financial stress can lead to larger mental health issues for students in higher education. How is this being addressed by colleges and their insurance partners?
By: | November 29, 2023

Who among us hasn’t worried about our finances? 

Now imagine a new college student, an 18-year-old fresh out of high school who is about to enter into four years of schooling — maybe more, depending on their career goals.  

Education Data Initiative reports that the average cost of college in the U.S. is $36,436 per student per year. Interest rates for loans run anywhere from an average of 5.5% to 16%. Student loan debt is close to $1.77 trillion nationwide today. 

“Financial stress and student loan debt can have a particularly disruptive impact on anyone’s wellbeing — losing a job or home, being victim to identity theft or accumulating major debt not only adds stress but makes us feel unsafe,” explained Tony Walker, SVP of academic programs at The Jed Foundation (JED), a nonprofit organization that provides high school and higher education institutions with mental health resources for young adults.

“Young people are particularly vulnerable to debt-related distress because they tend to have fewer assets at this phase in their life: The higher the debt, the worse the distress may be,” he said.

Students entering college are asked to make very big decisions about their lives without really getting an education on how to finance them. And as the reality of student debt sinks in, that weight can become a mental burden on even the best and brightest. 

For the last eight months, Risk & Insurance® has been reviewing the effects of mental health on higher education, looking at stressors related to student life, academia, study abroad and more.

As we close out our Mental Health in Higher Education Series, we look at one of the biggest topics in higher education, finances, and how insurance is stepping in to help. 

Financial Stress, Emotional Burden 

Students are expected to navigate the waters of wanting a good education, needing to afford it, and balancing all the additional pressures of student and personal life along with it. The compounding weight of worry over finances coupled with everyday challenges can lead to a harder burden to bear.

Tony Walker, SVP of academic programs, The Jed Foundation

“Under financial stress, young people can experience emotional and physical symptoms such as fear, shame, despair, trouble sleeping, low energy, substance misuse and even suicidal thoughts or behaviors,” Walker said.

Research shows that accumulating student loan debt increases psychological distress in those ages 18 to 28, and 54% of student loan borrowers say their emotional wellbeing directly correlates to their debt.  

“The stress of financing an education is excruciating,” shared Jose Caballero, JED’s 2023 Student Voice of Mental Health Award Winner. Caballero is a current college sophomore attending Columbia University.

The cost of higher education lives rent-free in my mind 24/7,” Caballero continued. “As a first-generation student, applying for financial aid was overwhelming and stressful, especially without my family’s guidance. The pressure to excel academically was already a huge stressor in my life, and sometimes I felt like my efforts, aspirations and dreams would be unattainable due to financial constraints.”

It’s important to note, too, that financial stress is more than tuition — though that plays a huge part for many students. Family life, financial education and more also have a role to play in how a student manages financial stressors.

According to a 2021 Hope Center survey, nearly three in five college students face some sort of basic needs insecurity, including housing instability, food insecurity and lack of access to affordable health care.

Through the work he does at JED, Walker shared that students facing such financial barriers are less likely to seek out counseling services or therapy, meaning they are more likely to continue to feel the pressures of financial insecurity without finding a way to cope.

Detriment to the Student, Detriment to the School 

“Anytime a student has stress, anxiety or depression, the student loses focus, is not as productive, and academic performance can suffer. And that affects them physically and emotionally,” said Elizabeth Marks, senior strategy consultant at Academic HealthPlans, Risk Strategies Student Health Practice.

“When a student suffers from emotional stress — and worries about money can lead to emotional stress — oftentimes the student decides to drop out of college,” she continued. “According to a 2020 Lumina-Gallop Poll, emotional stress is the most common reason for withdrawal. In fact, 76 % of undergraduate students have considered dropping out. 

We’ve heard it countless times throughout this series: The goal of a college or university is to educate its students. When a student is suffering, the university can no longer reach its intended goal.

The school loses that student, that revenue source. It impacts their retention record,” said Marks. “Often, there’s an account payable they’ll have to collect. Having healthy students enables the mission of the school to educate students and see them to graduation.”

Higher ed institutions can also face claims upon a student’s withdrawal due to emotional stress.

In one of the more reported examples, a class action was filed against Yale University last year in which students alleged that the institution “discriminated against students with mental health disabilities and pressured them to withdraw.”

These actions add a reputational blow to an already precarious situation. No higher ed facility wants to have a reputation for dropouts. And no university wants to discriminate against students with mental health requirements. So, what should they do to get ahead?

Programs Already in Place

Universities and colleges are not blind to the financial strain of higher ed; that’s why they have financial aid options already in place to help students address their individual situations, like scholarships, grants and financial counseling, to name a few.

Some also partner with local businesses to help alleviate the monetary burdens of student life.

“They will often partner with local businesses such as eating establishments and/or local retailers to negotiate discounts for their students. Public transportation rates may also be negotiated at reduced rates with local municipalities for students to ride buses and/or trains,” said Walker.

Additionally, schools may have food pantries, laptop programs that offer the devices on loan or at a reduced cost, and formal clothing to loan to students for interviews and other events.  

These efforts are noble and come from the universities themselves. Insurance and risk management are also playing a role today.

Students who face health care costs, perhaps even those associated with mental health, can run into financial burdens while in school. In response, universities and colleges offer health insurance plans to students to offset some of those costs. 

“Some colleges and universities offer a school-sponsored plan in which students are automatically enrolled and are billed by the school, unless they can demonstrate that they have their own private insurance with comparable benefits,” Walker said.

“Health insurance companies, whether school-sponsored or otherwise, can be proactive and reach out to customers to educate them about coverage for students while at school. Students and their families should also plan ahead and contact their insurance and make sure that they are clear about both medical and mental health coverage benefits.”

One Other Solution? Tuition Insurance  

There is one approach universities and colleges are utilizing more and more, and that is tuition insurance. By offering students this in advance of a semester, the institution is essentially giving the student a financial cushion to fall back on.

So, how does it work?

Elizabeth Marks, senior strategy consultant, Academic HealthPlans, Risk Strategies Student Health Practice

Tuition insurance will cover a student’s fees if a student has to withdraw for a semester due to a medical condition that has been certified by a psychologist or an MD. That “medical condition” could be an illness, like a cancer diagnosis. It also includes withdrawal due to bodily injury, such as incapacitation due to a car accident.

And it could also be for mental health reasons.

The caveat is that the student must have the insurance before they start their semester in order for it to kick in if a withdrawal needs to take place.

One of the biggest names in tuition insurance today is GradGuard, which has been around since 2009. Cofounder and CEO John Fees shared how the GradGuard program works.

“Most every student wants to complete their term, but there are many legitimate reasons that get in the way, and when they do, families should not expect a complete refund beyond the first week of classes,” he said.

“GradGuard’s tuition insurance provides a refund when schools do not. The insurance provides a payment for the financial loss caused when a student withdraws due to a covered reason, such as an accident, injury, or physical or mental health condition.”

Fees shared that coverage must be purchased prior to the start of classes.

“If [a student] is not going to complete their term, then we know there’s a legitimate reason as to why they might need to leave school,” Fees continued. “And if it’s in the best interest of the student, and the physician agrees, our coverage is enforced.”

Today, most schools do have a tuition insurance offering, either on a voluntary or opt-out basis. In addition to tuition, per Marks, tuition insurance covers on-campus housing and academic fees. Some plans might include a small benefit for off-campus housing or a partial loan reimbursement program. 

There are only a few insurers that offer tuition insurance, she noted, so it’s important for higher ed institutions to work with their insurance partners to understand the coverage they’re getting.

Marks added that as a school looks to incorporate tuition insurance, its broker should be checking for any mental illness limitation, as well as substance abuse exclusions.

“Typically, tuition insurance plans have some preexisting condition exclusions, so it’s important to understand the coverage and disclose any limitations,” she said.

Education Beyond the Classroom

One thing that these higher education experts agreed on: Every step toward student financial literacy is a step in the right direction.

“Incorporating financial wellness programs is a means to get ahead of financial stress,” said Marks.

This is something that universities are already doing, but in order to do it well, they must look at opportunities to get the message out to students at every touchpoint available. 

That would mean educating students through literature and information sessions around credit and debt management; teaching them how to budget; counseling them on how to manage caring for a loved one in the event that a student is financially responsible for an older parent or dependent; giving students tools to prepare for emergencies; addressing different forms of investment; partnering with student health and wellness; expanding financial aid office hours; and partnering with the right programs, like insurance or JED or GradGuard, to bolster resources for students.

“One way I believe we can make a difference and step up is to include financial wellness programs into the overall health and wellbeing programs that colleges offer to students,” Marks added. “Risk Strategies, as an example, has partnered with Prudential to include a financial wellness component to its telehealth offering, where students have access to literature on budgeting, credit/debt, etc.”

Universities and colleges should also listen to their current students and what they think is necessary for better financial literacy.

Learning how to fill out the FAFSA is undoubtedly essential, but students would greatly benefit from a more comprehensive education on financing higher education,” Caballero said. “I wish I had the opportunity to attend webinars with financial advisors or participate in a peer-mentor program where I could seek guidance from former students who navigated the same process.”

He also noted that starting early can have lasting benefits, not just for students’ bank accounts but also for their mental health as they enter into higher education: “There is a growing need to introduce financial literacy education in high schools. High school students, now more than ever, require assistance in navigating the complexities of financial decisions, especially regarding college choices and applications. Integrating a comprehensive financial literacy course into school curricula could prove highly beneficial.”

And, as always, providing counselors on campus is a boon to any mental health crisis.

“When a young person has to deal with student loan debt or financial stress, they may feel that they will never overcome these situations. But I want young people to know that there is help out there, resources available and a community to lean on,” said Walker. &

This concludes our Mental Health in Higher Education Series, where we’ve written on how mental health impacts different student demographics across a broad range of topics, like student athletics, social life, finances and more.  

Autumn Demberger is a freelance writer and can be reached at [email protected].

More from Risk & Insurance