If you’ve taken out extensive student loans for yourself or on behalf of your children or your grandchildren, the answer may very well be yes. An increasing number of people entering retirement are doing so whilst still saddled with student loans. How is this possible? Many are furthering their education later in life, or sheltering their college-aged children/grandchildren from debt, without giving thought to how they’ll manage once they are on a fixed income.
As of 2013, Americans over the age of 65 had an average of nearly $8,000 in debt, and a combined total of $18.2 billion owed in student loans. This group also saw the most growth in the past 10 years for student loan balances. Clearly, this is a problem that’s only getting worse, and who wants to be harassed by debt collectors, especially after retirement? So the question is, how can this be prevented?
Costs vs Benefits
When taking out loans for college, it’s always important to weigh the capital investment versus the prospective benefits for everyone involved. Say you’re looking to further your education in your 40s — you’ll need to carefully calculate the projected salary increase after your degree is completed. If the increase isn’t enough to cover your loans well before your retirement, then it’s not a smart financial decision. The same is true when taking on loans for other people. Take into account that the younger generations have more time to pay off the loans. While it’s a great gesture (and usually much appreciated) to pay for a loved one’s college education, it’s not a smart move to be carrying those debts into retirement.
Save for Retirement Early On
From the start of your career, you should be saving for retirement. However, as you get closer to retirement, it’s advisable to put any spare money into your 401(k) or IRA. Doing so can be very difficult if you’re forced to use that extra cash to pay back loans. The findings of a recent study by the U.S. Government Accountability Office are disturbing: approximately half of households with people over the age of 55 have nothing saved for retirement. Avoid finding yourself in financial difficulties at a time when you should be reaping the benefits of years of hard work.
Choose a Less Pricey Option
When selecting an institution, don’t assume that a private college is the way to go. Especially when furthering one’s education, a public in-state college can be a great alternative. For an even more affordable option, consider a community college. Also, if you’re set on helping a loved one cover the cost of college, consider paying only a portion of the four years, or contributing in other ways, like paying for their room and board.
Student loans are a necessary evil in today’s world, but that doesn’t mean borrowers shouldn’t be cautious about incurring such debt. It’s vital to carefully consider the impact that any financial decision will have down the line. If your student loan debt has taken a toll on other areas of your life, the Miami foreclosure defense attorneys at Graham Legal (who have extensive expertise in debt defense) can help to see you through your financial struggle. Give us a call today for a free consultation.