When you think of student loans, do you think of them as a young person’s problem?
Think again. According to data from the U.S. Department of Education, more student debt is currently owed by people aged 35 and older than by those under 35. For many Americans the burden of student loan debt has lingered into middle age.
Consider this a modern definition of a mid-life crisis: juggling competing demands from your past and your future by trying to pay off student loans while also starting to think seriously about how to save enough for retirement.
Two generations of student loans under one roof
The figures from the Department of Education show that over $800 billion in student loan debt outstanding is owed by people aged 35 or older. This includes over a quarter of a trillion dollars owed by people aged 50 and over. That’s righ — people old enough for AARP memberships are still tackling a problem generally associated with millennials.
By age 50, people are often grappling with how to send their kids to college. This has created the very realistic scenario where a family has two generations worth of student loans outstanding under the same roof. Is it any wonder that older Americans generally are behind on saving for retirement?
A few things have contributed to this problem:
Full or partial deferrals of student loan payments may make the burden easier on young adults, but with interest charges it can make for a greater debt load later on. During the Great Recession, many adults decided to go back to school to try to improve their career prospects, and with rapidly changing technology and business models, refreshing skills and credentials remains an ongoing career imperative. Parents and even grandparents may cosign loans for younger family members, and then find themselves stuck with the debt when the borrower defaults.
If you are concerned with student loan debt lingering long enough to interfere with your saving for retirement — or even with retirement itself — you need a plan for systematically attacking the problem and managing debt.
Tips for older Americans paying off student loans
Here are eight tips for older Americans paying off student loans:
Take stock of your loans outstanding. Think of this as a kind of inventory so you know where you stand. Make a list of all your student loan balances, their monthly payments, interest rates and how long you have to go to repayment.
To forgive is divine… but being forgiven might be even better. If you have a federally-backed student loan, see if you qualify for a loan forgiveness program. For example, if you have been on an income-based repayment program and have been paying off your loan for 20 years or more, you may qualify to have the remaining balance forgiven. There are also special forgiveness programs for some teaching and public service jobs.
Triage your spending. Once you know the scope of the problem and whether any relief is available, look for extra room in your budget to pay down debt. Start by examining your spending. Distinguish between which expenses are actual necessities, and which are simply habits that you could break. Prioritize to find at least some expenses you could cut to make room for additional student loan payments.
Accelerating loan payments should save money in the long run. As an incentive for additional student loan payments, remember that making extra payments will not just pay your loan down sooner, but should also be cheaper in the long run because it reduces the total interest expense you incur.
Decide where student loans fit in your hierarchy of debt. While paying down student loans is important, they may be a relatively cheap form of debt compared to things like credit card debt. Put any extra debt repayments toward your most expensive sources of debt first.
Don’t let extra payments get in the way of qualifying for a 401(k) match. Deciding between student loan repayment and retirement saving is tough, especially as you move into middle age. One clear-cut choice is that if you can make 401(k) contributions that qualify for an employer match rather making than extra student loan repayments, chances are the value of that match may far exceed the interest saved from paying down your loan faster.
Evaluate refinancing options carefully. If you receive refinancing offers, evaluate them with a long-term view in mind. Refinancing options that reduce your immediate payments are likely to prolong your debt and increase your eventual interest expense.
Factor student loan repayments into your retirement planning. When you enter your retirement savings into a retirement calculator, be sure to subtract the amount of any debt you have outstanding. That debt is a drain on future income, so to some extent it may offset your retirement savings.
It’s okay to be nostalgic about your college days, but paying student loans well into middle age should not be part of reliving your past.