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Final Paper-Anxiety and Stress Caused by Student Loans: Impacts on University

Students’ Concentration and Academic Performance

Name:

Institution:

Date:
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Abstract

The American student loan debt crisis has become a serious public policy issue.

This financial strain, while allowing access to university studies, has more and more been

associated with anxiety and chronic stress among higher learning students, impairing

their capacity to focus academically and perform well. The research paper explores how

stress and anxiety caused by student loan debt can affect learners' concentration and

academic outcomes, placing the analysis within present American policy developments,

including the One Big Beautiful Bill and recent SAVE Plan changes. Based on 14 peer-

reviewed articles and other policy data for 2024-2025, it finds the major stakeholders,

successes, and failures of past and current policy, as well as the institutional support

systems' mitigation role. These results suggest that reforms focused on reducing student

loan debt, such as expanded income-driven repayment plans, more need-based aid, and

mental health services, should be implemented to deal with the two-pronged financial and

psychological burden of student loan debt. Such steps are essential to continuing higher

education as a meaningful avenue to national economic development and social mobility.

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Introduction

The increasing cost of university studies in America has changed the financial

situation for millions of learners, making the student loans program a key way to finance

higher learning. Over the last few years, education charges have far overtaken both

inflation and wage growth, with average yearly expenses for public higher education

institutions surpassing 10,000 USD for home-state students and more than 27,000 USD

for out-of-state learners in 2025, whereas private universities frequently exceed 40,000

USD. Consequently, over 43 million US citizens jointly owe nearly 1.64 trillion USD in

student loan debt according to the Federal Reserve Bank of New York's (2025b) Q2

report on household debt. While these loans boost education access, they come with

weighty psychological and financial-related stress. Adams et al. (2016) and Iqbal et al.

(2022) studies consistently associate financial burden with increased cases of cognitive

dysfunction, anxiety, and depression. For most students, the repayment pressure

undermines focus, academic performance, and overall career planning. This paper

explores how stress and anxiety due to university student loan debt impact students'

ability to concentrate and perform well in their studies, while examining the role played

by policy reform and institutional support in mitigating the problem.

Identifying a Significant Current Education-Related Public Policy Issue

Loan-related financial stress on students’ cognitive functions is not just an

economic challenge but an intricate public policy problem with deep psychological and

social implications. The recently passed One Big Beautiful Bill (OBBB) on July 4, 2025,

resulted in sweeping reforms to the US federal student loan landscape (US Department of
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Education, 2025). OBBB restricted future enrolment in income-based repayment (IBR)

plans intended to protect taxpayers and minimize excessive borrowing.

The SAVE Plan, one of the most notable IBRs designed to offer relief to

financially burdened students by capping payments depending on income and saving

borrowers from interest accrual, has been facing nonstop lawsuits challenging its

repayment plan (US Department of Education, 2025). Consequently, millions of

borrowers are again facing interest accumulation, reversing a number of financial

progresses attained during the COVID-19 student loan payment pause. According to the

Federal Reserve Bank of New York (2025a), there has been a sharp increase in defaulted

student loan debt since the end of the pandemic-era pause, which lasted for almost five

years. In the first quarter of 2025, student loan delinquencies grew by 16 billion USD,

hitting 1.63 trillion USD, as previously unreported missed payments started reflecting on

credit reports. The aforementioned developments highlight the strain between borrower

relief and fiscal responsibility. While it is crucial to control federal expenditures, policy

reforms that exacerbate financial burden risk aggravating mental health complications for

university students (Callender & Davis, 2024; Lawley et al., 2025).

Relevance to the United States Today

Student loans’ psychological implications are extensively felt across America,

with than 50% of the borrowers reporting suffering from significant anxiety connected to

their debt (Kim & Lee, 2024). For most students, this student loan-related anxiety is

manifested through sleep disturbances, heightened stress, and difficulty concentrating

during exams. The loan-related psychological burden disproportionately affects first-

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generation and low-income students who often face financial challenges (Gallardo,

2023).

It is also crucial to consider the economic burden of student loan debt on

American learners. Financially burdened students might be forced to delay significant life

decisions like home ownership, pursuing further studies, or starting a family (Molesworth

et al., 2025). Nationally, low economic involvement from indebted students can

exacerbate wealth disparity and impair overall development (Andrews et al., 2024).

Based on a social equity lens, the student loan-related financial burden undermines

university studies’ potential as an avenue to success. If not addressed, the crisis risks

establishing disadvantageous cycles, particularly for the less-privileged and marginalized

American populations (Sinha et al., 2024).

Policy Makers and Stakeholders' Interactions as well as Impact on each other

Student loan programs are shaped by an intricate system of stakeholders, who

distinctly influence debt issuance, management, and repayment. For instance, at the US

federal level, the Department of Education is the main overseer of student loan programs

as it establishes regulatory standards, oversees compliance among borrowers, loan

servicers, and providers, as well as enforces repayment policies (US Department of

Education, 2025). Though complementary, Congress equally plays a vital role, helping

determine overall allocation of funds for tertiary studies and shaping the scope of the

national government's financial aid initiatives, such as borrowing limits, eligibility

criteria, and interest rates. State governments similarly influence affordability and

accessibility by determining public institutions' funding allocations and executing state-

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based financial aid programs, which help to supplement or minimize dependence on

federal funding (Gurick, 2024).

Meanwhile, higher education institutions are directly obliged to set tuition costs,

decisions that considerably impact the loans borrowed by the students. Most universities

and colleges provide students with financial aid resources that guide them through their

grant, loan, or scholarship application process and offer some financial counselling

services. Nevertheless, these services greatly vary in terms of accessibility and

effectiveness, and depending on available resources, institutional priorities, and student

support commitment (Molesworth et al., 2025).

Student loan servicers connect the federal government and borrowers, processing

payments, managing repayment timelines, and guiding the repayment process. Some loan

servicers prefer borrower support and transparency, but others have been heavily

criticized for bureaucratic delays, inadequate assistance, and miscommunication.

Systemic pressures can worsen borrower anxiety and stress. Ultimately, the complex

interplay between this network of stakeholders determines whether the loan system

deepens or lifts the financial burden from students, making accountability and

collaboration essential for meaningful reform.

Evaluation of Successes and Failures of Policy Approaches

The US federal government has implemented several initiatives to reduce student

loan-related financial pressures and enhance borrowers' repayment outcomes. For

instance, IDR plans tie payments to a debtor's discretionary income, easing repayment

and avoiding defaults among lower-income persons (Schiff et al., 2025). Nevertheless,
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such plans have been affected negatively by the limited eligibility criteria in terms of

access, limited awareness among borrowers, and complex joining conditions that make

the process unattractive (Kar et al., 2024). The other leg of federal assistance is the Pell

Grants, which dole out the funds on a need basis and thus decreases the dependency on

loans. However, the grant has been unable to keep up with the drastic increase in tuition

fees and living expenses over time, which takes away its efficacy (Adams et al., 2016). In

addition, the proposed limitations on Pell eligibility create the risk of missing the students

in the most financially vulnerable groups and expanding access divides (Callender &

Davis, 2024).

At the institutional level, peer-mentoring programs, financial literacy workshops,

and incorporating mental wellness counselling into student affairs have demonstrated

potential in enhancing resilience and assisting students in coping with debt's

psychological and practical challenges (Russell et al., 2025). Still, such interventions tend

to be dependent on variable outside funds. They might be insufficient in scale to support

all the students who need them, which is why more long-term investment and increased

policy support are needed.

Research Synthesis and Recommendations to Policymakers

A coordinated, multi-pronged approach is crucial to addressing the interrelated

concerns of the student debt crisis, anxiety, chronic stress, and academic outcomes.

Policymakers must focus on expanding and restoring IDR plans, where monthly

payments are proportional to the income of the borrowers and where interest accumulates

without causing a disproportionate burden to low-income students (Andrews et al., 2024;

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Gallardo, 2023). On the institutional scale, capping tuition fees and incentives to manage

the cost of operations among the universities will aid in keeping the financial burden on

the students under control (Nasr et al., 2024). In addition to financial reforms, universities

must incorporate a wide-sweeping financial literacy program in student life, and

incorporate these services with easy-to-use mental health counselling so that students can

work through the emotional and practical aspects of debt simultaneously (Widenhoefer et

al., 2025). Federal and state agencies, educational institutions, and nonprofits will play a

key role by collaborating to scale these reforms and achieve equitable access. There is a

need to align financial policy with mental wellness support to safeguard the well-being of

students as well as foster long-term academic achievement, social progression, and

national economic prosperity.

Conclusion

In summary, the American student loan-related crisis is a prevalent mental and

financial health concern that adversely affects university learners' academic focus and

performance. Evidence from this research, as well as other reviewed studies, shows that

stress and anxiety associated with loan repayment burden obstruct focus, minimize

academic engagement, and aggravate inequality, especially among first-generation and

low-income learners. Recent policy reforms like President Trump's passing of the One

Big Beautiful Bill and the SAVE Plan disruption highlight repayment structures '

instability and call for implementing policy reforms that balance student wellbeing and

fiscal responsibility. Addressing the student loan debt crisis needs a synchronized

approach that expands IDR options, institutes tuition caps, increases need-based support,

and integrates psychological wellbeing within higher learning.

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References

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