We examine how social comparison within endogenously formed peer networks affects mental health among young adults. Using over 2 million smartphone-based communication records from the NetHealth Study – a dataset of university students with repeated mental-health assessments – we determine the network linking the subjects on the basis of objective measures of social interaction and estimate a structural model in which individuals form ties endogenously and mental health depends on the income of chosen peers. Under exogenous network assumptions, higher average peer income improves mental health, consistent with positive spillovers from a wealthier social environment. Once we model network formation endogenously, this relationship reverses: exposure to higher-income peers significantly worsens mental health outcomes, indicating that adverse social comparison effects dominate income spillovers. Decomposing peer income into upward and downward components reveals that income gaps harm mental health symmetrically regardless of direction, a pattern inconsistent with standard relative deprivation and consistent with inequality aversion. These findings demonstrate that endogenous peer selection is not a second-order econometric concern but a substantively important force shaping the mental-health consequences of social comparison, and that models ignoring network formation risk qualitatively misleading conclusions about the direction of peer effects.