Let’s paint a picture of the first day of your future retirement: What an exciting time! It’s a time where we can enjoy the spoils of our labor. It is a time we have budgeted for – for living expenses, maybe even a little vacation… and outstanding student loans. Yes, student loans!
It’s a growing trend amongst Americans entering retirement years. According to US News, “Outstanding federal student loan balances for people 65 and older have ballooned from about $2.8 billion in 2005 to $18.2 billion in 2013, according to a GAO analysis of Survey of Consumer Finances data.” The even bigger concern is that among those individuals between the ages of 64-74 who have the student debt, 27% of the federal loans are in default. Those student loans are not free and don’t go away. As much as 15% of a retiree’s social security check can be withheld by the Government to help satisfy the debt, as well as any tax refund that may be available. Student loans are not similar to other types of debt. Student loan debt is difficult to discharge in bankruptcy.
According to the US Department of Education, enrollment in degree-granting institutions increased 24% between 2002 and 2012. When you pair that with what collegescholarships.org found it can be a little scary. They reported that the average student loan debt from a student graduating from a four-year school is $26,600. Graduate students enter the workforce with an average of $43,500 in student debt. Just thinking about all that can start to dim our excitement about graduation…let alone retirement.
Fortunately, we have a few tips that can help students of higher education, and parents or guardians who may acquire loans on a student’s behalf. It is important to realize that no two college experiences will be the same. The financial needs of one student will differ from others. With that information, let’s discuss how to beat the trend.
- Take advantage of College Savings or Prepaid Tuition plans. These plans offer a tax friendly way to accumulate funds for secondary education. Some plans are even designed to combat the inflation of tuition costs which, according to The College Board, have increased on average 3.4% per year over the last ten years. Combating inflation may be your way to make education more affordable.
- Avoid the minimum payments when student debt is unavoidable. By making a larger payment or more frequent payment the principal is paid down faster. By reducing the principal faster than scheduled you will actually pay less over the life of the loan than by paying the minimum each month. This, incidentally, can be a sound practice for other major loans.
- Work through school to pay for living expenses. A part time job can earn students the extra spending money they need to avoid taking unnecessary student debt. Interest rates on student loans can be as high 6% and the cost of borrowing can become very expensive if not done responsibly. Working in college can also offer job experience that may be a positive addition to a resume when the career search begins.
There are many things we can do to obtain a great education and keep from being trapped until and into retirement by the shackles of student debt. The great thing about this current trend is that we do not have to follow it. Let’s create a new trend together.