With reports showing student debt levels topping $1 trillion, many of us may feel the impact of student loans on our finances. The situation worsens when we have other competing priorities to attack.
It’s often thought that only Millennials deal with the problem of student loan debt. A recent Aon Hewitt study shows that’s not the case; 26 percent of Generation X workers and 13 percent of Baby Boomers carry student loans. Just as each situation is unique, the approach to attacking this debt varies based on your particular situation. Here are some things to keep in mind, depending on where you fall generationally.
How to Balance Student Loans as a Millennial
Debt can be suffocating. When you have a significant amount of debt to pay off, it can be overwhelming to know where to start. The average class of 2016 graduate is coming out of school with close to $40,000 in student loans. Many don’t know how to balance paying off that debt with long-term goals like retirement, or short-term goals like finding a place to live, buying a car and more.
With retirement so far off, it makes sense to throw everything at the debt and ignore retirement. Carl Gagnon, Assistant Vice President of Global Retirement Benefits at Colonial Life’s parent company, explains that may not always be the best move.
“Like many financial decisions, this will depend on a number of factors,” Gagnon says. “If Millennials have access to a 401(k) plan at work, they should look closely at the company matching contribution. If one exists, this ‘free’ company match will be provided, usually after one year of service.”
You may not feel like you can afford to set aside much, but this 401(k) match is a great way to grow the little bit you’re able to save – not to mention providing an immediate return. In light of that, it will generally make sense to make the minimum debt payment so you can take advantage of a 401(k) match. You can decide what to do with any extra funds after that.
The best way to balance this with student loan debt obligations is to start an emergency fund as soon as possible. Although experts recommend setting aside 3-6 months of living expenses, don’t let the goal hold you back from starting. Set aside funds until you can save $500, then $1,000 and build on that to grow your confidence in saving.
How to Balance Student Loans as a Gen Xer
Generation Xer face their own unique challenge with student loans – especially if they have growing families. Typically in their prime earning years and saving for retirement, Gen Xers also face other financial priorities like saving for college for their children, paying off a mortgage and other financial obligations. Student loans can create a drag on all those priorities.
If you’re in this situation, don’t give up. There are tools available to help you attack student loan debt so you can balance your priorities.
“More and more companies are offering financial help tools – including those focused on student debt – to support their employees with their financial demands,” says Gagnon.
If your employer offers such help, take advantage of their tools. Speaking with a financial advisor can also help you optimize your efforts. This will likely entail starting a budget and taking a holistic view of your finances, so you can identify where and how you should best focus your efforts.
How to Balance Student Loans as a Baby Boomer
A growing number of Baby Boomers face student loan debt problems – with those over 60 holding over $66 billion in debt, as of 2015. This poses a unique problem for Boomers, especially as they are focused on preparing for retirement and confronting the likelihood of living on a fixed income. If student loans were taken through the Department of Education, the government may be able to garnish Social Security payments for those who default on payments.
Just as is the case with other age groups, work to find a solution, in light of your overall picture. Gagnon points out that not all solutions may be good. “There are some loans that can be re-amortized over a longer payment period, which has the effect of lowering the current monthly payment, but at the cost of lengthening the loan payment period.”
You likely will want to work with a financial advisor to help you form a plan of attack for the loans as you approach retirement. Doing so will help you know how these loans play into your overall financial health and how to retire with greater peace of mind.
Student loans pose a unique problem for many Americans. With helpful resources and careful planning, it’s possible to balance their role in your financial life.