Are Your Student Loans Causing You to Put Your Life and Savings on Pause?

I think we can all agree there are few things that can steal our joy as quickly and easily as having debt. If we were to pinpoint one type of debt that has delayed recent graduates from saving for retirement, it’s Student Loans.

With the current student loan tally in the U.S. at just over $1.7 trillion, it is evident that the concern will endure for the approximately 44 million Americans who currently have an average student loan balance of $37,000.

Our experience, through thousands of one-on-one financial planning sessions each year, has been that the average retirement saver has been conditioned to prioritize their student loan payoff ahead of saving for their retirement. On the surface, it seems like the right path, right? Pay off the debt and then have decades ahead to make up ground.

The reality is that it’s a give-and-take situation. If I focus too much on student loan payoff, it could mean sacrificing retirement savings, or sacrificing vacations, or sacrificing… fill in the blank.

Let’s look at some potential next steps from our perspective as an individual as well as those we may be seeing from our employers.

What About My Needs?

Focusing on ourselves is essential when addressing our financial futures. Laying it all out on the table and crafting a path forward is crucial to our future financial success. The below steps are critical:

• • Know and understand your expenses and your income. Yes, tracking your expenses will be a must if you are going to understand how your income can best impact your debts.
  • Learn how your company’s 401k plan works. Is there a match? If there is, you should consider contributing what is necessary to receive as much of the employer match as you can. Does it have an “Auto Increase” feature? If so, set your contributions to what you can afford today and have them automatically increase by 1% each year while you are paying down your student loans. You won’t even feel the increases, and before you know it, you will be saving more than you ever thought possible.
  • If you don’t have more pressing needs, use any “variable income” as a lever to reduce your debt more rapidly. If you can, use tax refunds, bonuses, etc. to paying off debt.

How Can My Employer Help?

There is no doubt that the last few years have brought student loans to the forefront of employers’ attention. The CARES Act of 2020 opened the door for employers to provide educational assistance benefits to employees in a more tax-advantaged environment under section 127. With that being positioned at least through 2025, some employers have created programs that can provide funding for employees to reduce or eliminate student loan debt.

Bottom Line

Life is too short to allow student loan debt to meddle with our financial dreams. If there is a silver lining to debt, it is the fact that it requires us to live without that income. We will naturally develop our lifestyle around the amount that makes its way into our bank account each month. So, save what we can afford today in our 401k accounts with at least enough to take advantage of any company match. Increase those contributions each year and, where possible, use any variable dollars that come our way to attack our student loan debts beyond the current monthly payment.

Want to learn more about budgeting and debt reduction? Check out the Financial Academy OnDemand Page: Budgeting & Debt Reduction.

Investment advice offered through OneDigital Investment Advisors, an SEC-registered investment adviser and wholly owned subsidiary of OneDigital.