Facing up to debt

Though she grew up poor, counseling psychology student Karen* never felt particularly worried about money until this year. Now, the sight of a credit card or tuition bill can give her cold sweats, and she holds her breath every time a cashier swipes her credit card, fearing it will be declined.

"I am taking out the maximum amount of loans and still working two jobs to cover the bills," Karen says. Her credit card debt as a result of a semester spent abroad during her undergraduate years doesn't help matters. "I feel shame and anxiety any time I think about money."

Karen's financial anxieties are all too familiar among psychology graduate students. APA's latest survey of doctoral graduates, completed in 2011, revealed that more than two-thirds of all students took out loans during their education, with the median amount of debt ranging from $30,000 for psychology research PhDs to $80,000 for students in health service professions. PsyD students graduate with a median debt of $120,000. These amounts have increased substantially over the past 15 years; in 1997, health service professional students graduated with a median of $40,000 of debt, and research students with around $20,000.

Psychology graduate students aren't alone on top of their mountain of debt — it's a trend for students in general, according to a report released in October by the Institute for College Access and Success, a nonprofit research and advocacy group. College students who graduated with bachelor's degrees in 2011 left school with the largest average student debt load in history — $26,600, a 5 percent increase from $25,250 in 2010.

While debt is increasingly common, many grad students feel isolated by the shame of being in the red, and that keeps them from having honest conversations about it. Many students say they prefer "just not to think about it" because adding money stress to their academic stress is overwhelming. While that's an understandable reaction, research shows that hiding from debt can be associated with bad financial decision-making and mental health problems. Financial experts and early career psychologists who have overcome their struggles with debt say students need to get real about the debt they are taking on, and tout the benefits of taking a more clear-eyed view of things.

"A lot of psychologists end up running businesses at some point in their careers, so we really have to fight the tendency to be in denial about money," says financial psychologist Brad Klontz, PsyD, author of the 2009 book "Mind Over Money." "We need to come out of school already prepared to take care of ourselves financially."

The psychology of debt

Nearly 64 percent of psychology graduate students report that concern over finances and debt interferes with their optimal functioning, according to a May 2012 study in Training and Education in Professional Psychology (PDF, 106KB). The research, which included a survey of 438 students enrolled in psychology graduate programs, found that money concerns ranked second in student stressors, just under academic responsibilities. Shame/guilt and denial about problems also made the list.

These money concerns don't end once you have that doctoral degree in hand, and in some cases, they can get worse. Early career psychologist Darin Arsenault, PhD, for example, took on more than $170,000 in student loans while pursuing two master's degrees and a doctorate in clinical psychology at Alliant International University. "I make large payments automatically each month, I have my loans consolidated, but I will still likely pay until I die," Arsenault says. "Once a year, I really look at my debt and what I have paid off and how much of it goes to interest, and it's all a bit depressing."

One reason psychology students may struggle with financial issues is that money is often considered a taboo topic in the psychology profession, finds a study led by Klontz and reported in the November 2012 issue of The Journal of Financial Planning. Klontz used a professional listserv as well as online social networks to survey 422 financial planners, coaches, mental health providers and the public about their beliefs and behaviors around money. He found that mental health professionals tend to believe that money corrupts people and that it's not OK to have more of it than you need.

"These beliefs start in graduate school, where there's this sense that as psychologists, we are here to help people, and if you want to make money, you're in the wrong profession," Klontz says. "So, for a lot of trainees and graduate students, it becomes really tough to transition from giving away therapy for free, which is what you do as a grad student, to charging for it."

These types of beliefs can drive psychology graduate students and other mental health providers into "financial denial," which often manifests itself in behaviors such as not sticking to a budget, not opening bank statements and generally not paying attention to money, he says. But that kind of attitude can get students into even more trouble — both financially and emotionally, according to two studies led by John Gathergood, PhD, an economics professor at the University of Nottingham. In a survey of more than 3,000 households in the United Kingdom, Gathergood found that misunderstanding debt and being financially illiterate led to the accrual of even more debt due to poor financial decision-making (Journal of Economic Psychology, June 2012). In a separate survey of 10,000 people in the United Kingdom, Gathergood found that those who struggle to pay off their loans are more than twice as likely to experience a host of mental health problems, including depression and severe anxiety (The Economic Journal, September 2012). Yet in parts of the country where bankruptcy and repossession are more common, the effect of debt on people's mental health diminishes due to social norms, Gathergood says.

"The social stigma and psychological effects are reduced because people have more support from friends who are in the same scenario," he says.

So, while students may find comfort in the fact that many of their peers share the same financial burden, it won't help them make their student loan payments after graduating. Just ask clinical psychologist Andrea Bradford, PhD, who is on the faculty at a large academic medical center. Despite pursuing a research career throughout her training, Bradford says she opted for a more clinically focused position for income stability, and to help her pay off her student loan debt.

As a first-generation college student with no clear frame of reference about how to pay for higher education, Bradford says she wore blinders at certain times during graduate school. "I wish I had made some different choices in paying for my education along the way," she says. She admits that, while some of her debt is unavoidable, she owes more than she would have had she been better about forecasting her financial needs and sticking to a strict budget.

Taking control

The growing burden of student loan debt isn't just a personal failing, however. In many ways, the whole system is set up to encourage students to incur massive debt. Early career psychologist Tara Polson, PsyD, says that every year when she went to refile her student loan paperwork, she was reminded by her school's financial aid office that the education — not the money — was most important.

"At the time, I agreed, and just thought the loans would work themselves out," she recalls.

In addition, many colleges have moved away from a cash economy on campus, which can often lead to overspending, says Terrell Hayes, PhD, a sociology professor at High Point University who has studied the stigma of debt.

"Everything is paid for with a student debit card, so you have students spending money left and right on things in the bookstore or at the coffee shops and they really have no idea how much money they're spending," Hayes says.

What can students do to address the psychological burden of debt — not just the financial one? First, come clean about it to family, friends and significant others, says Polson. Doing so may force you to sit down, stop the denial game and make a plan for paying it off.

If you're still in school, it's also a good idea at the beginning of every semester to ask yourself how much money you really need, says Bradford. "It's easy to just check the box on your student loan paperwork and get the full amount each semester, but I wish I'd been a little more deliberate in my requests," she says.

Polson also encourages students to find out from their school's financial aid adviser how much their monthly student loan payments will be after graduation. Data compiled in 2009 by APA's Center for Workforce Studies show that the median annual full-time starting salary for a doctorate in psychology ranges from $40,000 to $70,000. If a full-time job in public service is an option, find out more about the federal government's Public Service Loan Repayment/Forgiveness programs, in which borrowers who are employed full time by certain public service employers may qualify for some loan forgiveness after they have made 120 payments.

"It's so important to plan ahead and to start making payments as early as you can, rather than waiting to think about it until after the six-month grace period," says Polson, who is one year into the 10-year loan forgiveness program, which she hopes will help her pay off her $141,000 in student loan debt.

It's also a good idea for students and early career psychologists to know what their options are in the event they do end up heading toward defaulting on their student loans. In September, the Consumer Financial Protection Bureau introduced an online tool to help with student loan repayment.

Students can also seek out certified financial planners if they want more financial help, says Klontz. When evaluating potential planners, ask them how they get paid, he says. If they mention commission or use the term "fee-based," you may find that there will be some pressure to buy things from them. Fee-only planners or those who charge an hourly fee for their time are more likely to provide more objective advice, he says.

Most important, however, students should be realistic about the fact that student loan debt will likely be with them for a long time, Polson says.

"It doesn't just go away. You're going to graduate and you're going to walk across that stage to collect your diploma and walk right into a brick wall of student loan debt."

*Name changed to protect student's privacy.

Amy Novotney is a writer in Chicago.