If you are a baby boomer currently struggling with student loan debt, you’re not alone. Baby boomers, who are now 59 to 77 years old, hold an average of $45,136 in student loan debt, according to Education Data Initiative.
Thankfully, there are ways to tackle those loans and move on from them financially. GOBankingRates spoke to financial experts to get their best tips on paying off student loan debt, so you can be happier and more financially secure as you approach retirement.
Don’t Ignore Your Debt
Some people are overwhelmed by their student loan debt. But creating a plan to pay it off requires you to have a clear picture of how much you owe. The first step is to fully understand your current situation. Many people with significant student debt don’t even know the exact amount they owe or how much interest is accruing across their loans.
Sit down and make a detailed list of each loan balance, interest rate and repayment terms. This gives you clarity on the scope of the debt. From there, you can develop a focused debt payoff plan and begin executing strategies to aggressively confront the loans. Conquering debt starts with awareness of your specific liabilities.
Know How To Prioritize Your Payments
When you’re juggling student loan payments with credit card debt and retirement savings, it can be hard to figure out how to prioritize your payments. Michael Micheletti, director of corporate communications at Freedom Debt Relief, recommended sticking to this order of priority:
- Pay the necessities first. “This means food, clothing and shelter. Moreover, make secured debt payments — at least the minimum — a priority. A secured debt is a loan secured by a tangible asset, like a house (or) car. If you do not make a payment on a secured asset on time, the risk of losing the asset increases.”
- Pay student loan debt. “Even in a bankruptcy, [student loan debt] cannot be discharged; it’s always there to be paid. Make the required monthly payments.”
- Pay down credit card debt. “Few, if any, investments will provide a better return. At current rates, paying credit card debt off generates, in effect, a 15% to 20% return.”
- Build an emergency fund. “Build at least a small one at the same time as you are paying off debt. Even if [you only contribute] $10 or $20 a week, it is important to build this fund so that when the next unexpected expense comes along, you don’t rush to the credit card. As you pay off your debt, you can up the amount you allocate to the emergency fund. Eventually, you will want a fund that contains enough to cover six to nine months of your base expenses.”
- Contribute to retirement savings. Micheletti said that this should be your last priority, though there is one exception: “If your employer offers a retirement savings plan, see what you can do to contribute while paying off your debt, even if it is a small amount. If your employer matches a part of contributions, take advantage. Not doing so is like giving money away.”
Create a Budget
You should factor your student loan payments into your monthly budget. And if you don’t have a budget, take some time to create one.
“While most people know how important it is to have a budget to track expenses, many simply don’t have one,” said Marcy Keckler, vice president of financial advice strategy at Ameriprise Financial. “Without realizing how much you’re spending each month, expenses can add up. Creating a written budget for your household can help you gain control of spending and identify areas where you can reallocate that money toward paying off your student loans.”
“For example, cutting back on extras, such as eating out, entertainment, subscriptions, etc., may seem like a small step, but the benefits will add up,” she said. “With the extra money you make from getting down your expenses, set it aside to apply it toward your student loans.”
Review Education Tax Credits and Deductions
Keckler said to check to see if you are eligible for a student loan interest deduction.
“If you have student loans, you may be able to deduct up to $2,500 of the interest you pay on student loans each year,” she said. “To take the full deduction, your modified adjusted gross income must be less than the limit, which is set annually.”
For the 2022 tax year, the income limit was $145,000 if married filing jointly and $70,000 if single, head of household or a qualifying widow(er).
Meet With a Financial Professional
If you can’t seem to figure out how to fit paying student loans into your budget, it might be worth it to seek professional help.
“Consider working with a financial professional who can help keep your finances in check and map out a plan to pay down your student loan debt, based on your current financial situation and future goals,” said Keckler.
Set Up Automatic Payments
The easiest way to stay on top of payments is to auto-pay your student loans.
“Automatic payments can help keep your student loan payments on track and help you avoid missing payments,” said Keckler. “Set up automatic payments on a monthly basis to your student loan accounts. Some lenders may even offer a reduction on your interest rate if you set up automatic payments from your checking account.”
Consider Getting a Side Gig
Finding ways to increase your income can help you pay off your student loan debt faster.
This might not be easy — especially if you’re working full time already. But the extra income from a side gig can help you pay off your debt faster.
Pay Off Your Loans With Home Equity
If you’re a homeowner, your house could be the key to paying off your loans.
Taking out a HELOC (home equity line of credit) could provide the funds up-front to pay off your student loan debt. Just make sure you’ll be able to make the payments on this debt, instead.
Refinance the Loans
If you’re not a homeowner, refinancing your student loan debt might also be a promising solution.
You might be able to get a lower interest rate, which would enable you to pay it off faster and reduce your interest costs over the life of the loan.
Consolidate Your Loans
If you have multiple student loans, you might consider consolidating them into one loan with a fixed rate. If you have federal loans, it doesn’t cost you anything to consolidate; the fixed rate will be based on the average interest rate of all the loans you are consolidating.
Cut Off Your Adult Children
It can be difficult to pay back student loans when you are still financially supporting your adult children. Empowering your children to take care of themselves financially can help them progress into adulthood and help make paying back student loans more affordable for you.
“We’ve seen more boomerang children who have spent a few years on their own after school, only to come home,” said Ksenia Yudina, CEO of UNest. “This leads to additional financial burdens on the family. Setting your children on the path to a more financially secure future can make it easier to set clear goals about growing wealth, which takes the burden away from parents.”
Cut Back on Expenses
Making sacrifices now could help you pay off debt sooner so you can move on with your life financially.
This might involve moving to a smaller house or even a cheaper city, if you can. Selling your car and relying on public transportation for a while could reduce your expenses, as well.
Make 13 Payments a Year Instead of 12
Budgeting for one extra payment per year can help you chip away at your debt faster. It might require some sacrifices, but it can be worth it.
“Making one extra payment a year — 13 instead of 12 monthly payments — can significantly cut down on the time it takes to pay off a loan,” said Yudina.
Apply for Income-Contingent Repayment
If your loans are taking a significant chunk of your income, you might consider applying for an income-contingent repayment plan if you took out a federal loan.
Borrowers with federal student loans in repayment for over 20 or 25 years may qualify for immediate loan forgiveness starting in Spring 2023.
The Department of Education has announced that federal student loan borrowers who have made 240 monthly payments (20 years) or 300 monthly payments (25 years) towards IDR (income-driven repayment) plans will see their outstanding loan balances forgiven. This applies to borrowers who have reached the 20- or 25-year repayment milestone for forgiveness even if they have not yet applied for forgiveness.
Refinance Your Loans in Your Child’s Name
If you took out loans on behalf of your student, you could consider refinancing them in their name if they are in strong financial standing. But this should be a last-ditch effort.
If your child is struggling with their own debt — or even if you simply never set the expectation that they would be responsible for paying back their student loans — this could be a disaster. The benefits of a federal loan, like income-driven payment plans and the possibility of loan forgiveness, would no longer be available.
Ask for Help
“Battling student loan debt is no easy feat. However, it’s important to remember that you don’t have to do this alone,” said Philipp von Girsewald, a financial services executive, fintech CEO and investment banker. “If you’re feeling burdened by student loan debt, the first steps you should take should be to contact your loan agent, ask your employer about any student loan assistance or tuition rewards plans they might offer or contact a student loan-specific firm that can help minimize the distress.”
Consider Using Retirement Savings To Pay Off the Loan
It might be the best move to pay off the loan ASAP with any funds you have access to — even retirement savings, said Alexandra Wilson, certified financial planner and product manager at Facet.
“If they have the funds, paying off their student loans is the quickest way to free up money in their budget,” she said. “Considering they will need to pay for their student loans from their retirement savings once they retire, it might make sense to pull a lump sum out of their savings to pay them off sooner.”
However, she cautions that this is not the best financial move for everyone.
“It’s best for baby boomers to speak with a financial advisor before paying off their student loans with retirement savings,” she said.
Why Baby Boomers Are Struggling With Student Loan Debt
There are several reasons why so many baby boomers have found themselves paying off student loans in their 50s, 60s and 70s, according to Judith Corprew, who heads the financial literacy program at Patriot Bank, N.A.
“First, tuition costs have increased dramatically in recent years, especially at private colleges, requiring both students and parents to borrow more and more to finance higher education,” she said. “Second, many parents take on student loan debt to send their children or grandchildren to college.”
“Third, student loan debt also includes loans taken to attend graduate school, which people often use to pursue a career change in adulthood,” she said. “Fourth, colleges have become more welcoming of non-traditional students — someone earning a bachelor’s degree today isn’t necessarily in their late teens or early 20s.”
Whatever the reason for your debt, taking the appropriate steps now to pay it off is essential for a worry-free retirement.
Laura Beck contributed to the reporting for this article.
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