About 10 years ago I met with a client — she was a teacher and a single mom hoping to put her kids through college. At 56, she was almost past the average retirement age for teachers in her state, yet it was clear she wasn’t going to be retiring anytime soon — not only because of the tuition bills she’d soon have to pay, but because she still had $180,000 in student loan debt of her own to manage, after paying for her bachelor’s degree, master’s degree and administrative certifications she needed to advance her teaching career.
Along with a high amount of borrowing, this teacher did something fairly common — shift to an extended repayment plan, which makes monthly payments lower in the short term, but ultimately extends the life of loan and the total interest owed and causes the total loan balance to grow.
While she ultimately met her goals, her challenge is all too common — managing high levels of student loan debt are impacting more and more people. For instance:
- Over the last 30 years, college tuition costs have grown nearly eight times faster than wages, according to the National Center for Education Statistics, and outstanding student loans now totaled nearly $1.5 trillion in Q1 2019, according to the New York Federal Reserve.
- Recent graduates are starting their careers already in debt, with members of the class of 2017 owing an average of nearly $30,000, according to The Institute for College and Success.
- Many of our clients in the education and health care fields who are required to earn advanced degrees see us with student loan debt of around $70,000 for doctors, according to debt.org, and more than $50,000 for educators, according to the New America Policy Program. However, it could be much more than that. Over three-quarters of 2016 medical school grads have an average of $189,000 in loan debt, according to the Association of American Medical Colleges.
In my financial services practice, I primarily work with K-12 teachers and nonprofit employees. When I visit schools to meet with teachers and help them with retirement savings and financial planning, many say, “I can’t afford to save anything.” They’re worried about managing their student loans today more than they’re worried about how they’ll manage in retirement tomorrow.
Fortunately, no matter how much debt you’re carrying, there are several ways to reduce the amount you owe, make the payments more manageable, and meet your other financial goals. Here are a few strategies to consider:
A portion of your loans can be forgiven through programs such as Public Service Loan Forgiveness (PSLF). To qualify, you must work full-time for a nonprofit 501(c)(3) organization, the military, public school, non-profit hospital or the government. However, many people either don’t know about the program, or how to optimize their loans and payments to qualify. Understanding the program, ensuring you are in the right payment plan and all the various paperwork is filled out correctly is immensely important to successfully accessing the program, as currently only about 1% of applicants are granted forgiveness, according to the U.S. Department of Education. For example, 120 on-time payments are necessary, and only specific types of loans qualify for forgiveness.
In addition to the PSLF program, there is also a Teacher Loan Forgiveness program. Take the time to see what you may qualify for and consider seeking expert help to make sure you enroll correctly. It’s like working with an accountant to file your taxes – an expert can help you navigate the process more smoothly.
Expedited payment schedules:
Many borrowers in the U.S. are taking extended payment plans, stretching out their loan repayment schedules to 20 or even 30 years — and adding all those years of extra interest to their overall debt burden. Instead, look to see if you can afford to move to a 10-year repayment schedule. This will reduce the total amount you have pay over the life of the loan. In our practice, the average loan balance of a teacher with a master’s degree is typically about $70,000. On a 10-year standard repayment plan, that translates to nearly $800 per month.
Think twice about deferment or forbearance:
Deferment or forbearance allows you to temporarily stop or delay making loan payments. However, interest continues to accrue even though you aren’t required to make payments. Doctors and other health care professionals, who tend to use this strategy, given their high student loan debt and relatively low salaries early in their careers, may want to consider an income-adjusted repayment plan instead that can later qualify for loan forgiveness.
One of my clients reduced her monthly payments this way, and she was able to apply the difference toward retirement savings and other expenses. When her salary went up her loan payments also went up, but she was already well on her way to paying down her debt. Plus, her early retirement savings can benefit from years of tax-free growth potential.
Have a comprehensive financial plan:
If you’re carrying a large amount of student loan debt, it’s difficult to think about anything else. However, making a financial plan that includes a strategy for paying down that debt, while allocating toward other goals, such as retirement, will help you make smart decisions. Understanding your complete financial picture — and knowing all your options — is the first step to meeting your financial objectives.
By looking at these options, you’ll be much better positioned to repay your loans, meet other goals, improve your financial health overall, and prepare for a comfortable retirement.
Randal J. Lupi is a registered representative who offers securities through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC, an investment advisor representative who offers investment advisory products/services through AXA Advisors, LLC, an SEC-registered investment adviser, and an agent who offers annuity and insurance products through AXA Network, LLC. Mr. Lupi may not be duly registered and licensed to transact business in your state. This article is provided for general informational purposes. AXA Advisors and its associates and affiliates do not offer student loan forgiveness, legal, tax or accounting advice or services. You should consult with professionals qualified in these areas. AGE- 2783412 (10/19)(exp.10/20)
Randal "Randy" Lupi is a regional vice president and retirement planning specialist with Equitable Advisors. He works with clients to create customized plans for retirement planning, investing and managing student debt. His dedication to clients earned him the 2019 Elite Advisor recognition from the National Tax-Deferred Savings Association (NTSA).
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