It’s likely you or someone you know has been deeply affected by student debt. If you had student loans, you likely experienced what an impact they made on your post-college life. As you started your new career, you likely had financial goals that included buying a house, starting a family, starting your retirement savings, and figuring out how to pay off the student loans…all at the same time. But here’s the rub and something you already know all too well: This is also the time of your life where you are earning less than you will in your future, when your career takes hold.
Hopefully you thought hard about the ramifications of taking on student debt. I believe that education is always a good investment, but an investment to make prudently, just like any other investment.
Are you getting value for the time and money you are putting into your education or are you accruing debt beyond what your new career will be able to support?
Accruing $220,000 in student debt to become a medical doctor is worlds apart from accruing $140,000 in student debt to become a nurse practitioner.
Sure, a nurse practitioner can make $70,000, even $90,000 eventually.
But the loan for the nurse is out of scale to the income. It will take a cumbersome amount of years to pay off that student debt, and at the same time the nurse practitioner will want to start financial goals commonly associated with life: Home, Family, Savings.
And if parents help out a child with college by taking on debt, their retirement may be severely affected if money that would have gone towards 401ks and IRAs is now diverted to paying for a child’s college education. While most parents want to help their children, without approaching the child’s college years with a plan could leave the parent and the child with an excessive debt load.
Another crucial consideration that directly affects the amount of student debt: Is that private or out-of-state public college really worth more than a public in-state school?
In some instances of course, especially if it’ll lead to a more noteworthy career. But in many others, the debt load that will be assumed will not be sustainable if the student enters a low paying or low stability job, and that student will be stuck in years of trying to get out from under the debt load, all while delaying other financial goals.
So, what choices exist if you or someone you know graduates with tens of thousands in student debt? There are few options, but they do exist:
1. Get a supplemental ‘fallback’ job. Also known as a second job, this job could be seen as your ‘paying off my student loans’ job. So, while you are focusing on your new career, you also have a second job that is perhaps 20 hours a week and with which you will use to pay your student loans off more quickly.
2. When buying a house, take out a HELOC to pay off the student loan balance. This option would apply to those that have an interest rate 3% and higher.
3. Allocate all extra money, e.g. bonuses or inheritances, towards paying off the student loan debt.
4. If possible, refinance. Sofi and Commonbond are 2 common providers of student loan refinance.
5. Get realistic about which goals really matter and when. If you want to start a family, the sooner the better with respect to the other goals like buying a house or starting retirement savings. It doesn’t mean you don’t also save for buying a house or contributing to your 401k or IRA, but it does mean you realize that the ability to have children has a finite window that is more compressed than the other goals.
6. Contribute up to the employer match until student loans are paid off. This isn’t an easy one to do, and will absolutely lead to a later retirement age. But if your student loans interest rate is over 3%, it’s difficult to argue that not paying them off early with money over the employer match would not lead to lower cost overall.
There’s no real easy way to tackle student loans except to understand how much they are costing you in interest and absorbing the tradeoff of not meeting your other goals in the timeframe you may want to.
But investing in your future career will lead to a richer life overall by providing you with work that matters to you and is meaningful, and it’s hard to put a price on that.