Is Student Debt Delaying Your Life Milestones? Here's What You Can Do About It

KEY TAKEAWAYS

• For many borrowers, student loan debt makes it harder to reach major milestones, such as buying a home, retiring or starting a family.
• Income-driven repayment plans can lower monthly payments, making it easier to divert money toward savings and investments in a borrower’s future.

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Are your student loans preventing you from accomplishing major financial milestones? You’re not alone.

Federal borrowers hold almost $1.7 trillion in student loan debt. That is a nearly 40% increase compared to the total balance a decade ago. Additionally, more borrowers are struggling with their debt payments now than ever before. Almost 10.7 million of the total 42.8 million borrowers are delinquent or default on their student debt.

For many student loan borrowers, it’s leaking into their other finances. In a recent Fidelity Investments survey, student loan borrowers, especially Gen Z and millennials, reported delaying major purchases and milestones to afford their student loan debt. Almost one-third of borrowers have delayed purchasing a home, and about one in five have stalled starting a family.

Why This Matters

Many student loan borrowers say they are confused and overwhelmed with their debt, especially as policies are rapidly changing. Understanding the student loan repayment system and staying up to date on the many changes can help borrowers manage their debt while also focusing on other financial responsibilities.

Tonya Escobar, a 55-year-old psychiatric nurse practitioner from Oregon, said she has about $215,000 in student debt from her undergraduate and graduate degrees and a post-master’s certificate. Escobar recently moved to the Income-Based Repayment, where her monthly payments take up about 20% of her paycheck.

Like many other borrowers, Escobar says she has enough money left over after her student loan payments to cover essentials, but doesn’t have much more expendable income to put toward savings or improvements for her car or home.

“I would have a higher quality of life if [my student debt] weren’t around me. It’s very choking,” Escobar said.

She is especially concerned about saving for retirement while paying off her student loans. Escobar is not alone in this experience.

Only a quarter of student loan borrowers feel confident they have saved enough to support themselves in retirement. A larger portion of their counterparts without student debt (38%) feel they have saved enough, according to a Fidelity survey.

Additionally, the average student loan borrower aged 50 and older saved up to $43,000 less in their retirement account than those without student debt, Fidelity found.

What You Can Do To Afford Both Your Student Debt and Milestones

Priorities for student loan borrowers differ depending on whether they aim to receive federal loan forgiveness, said Brenton Harrison, a certified financial planner from Nashville, Tennessee.

Federal student loan borrowers can get their debt discharged after 10 years of payments if they are a public servant or after 20 or 25 years if they are making payments on an income-driven repayment plan.

Generally, Harrison recommends that borrowers with a student loan balance exceeding their annual income aim for loan forgiveness. The lower the monthly payments, the better for these borrowers, Harrison said.

In particular, income-driven repayment plans encourage borrowers to allocate money to other areas of their finances because they use adjusted gross income.

“The lower your adjusted gross income, the lower your federal student loan payment, and many of the ways that you lower your adjusted gross income are beneficial to other areas of your finances,” Harrison said. “For example, you could put money in pre-tax retirement accounts. That’s one of the biggest tools to lower your adjusted gross income. You could also contribute to a health savings account.”

Other borrowers may not want to wait for a loan discharge. Since Escobar recently entered an income-driven repayment plan, she still has about 25 years until she can receive forgiveness. However, Escobar would like to pay off her debt before her retirement and said she will put off expenses such as buying a new car and going on vacation.

“I’m going to have to take my resources and put them to just [my student debt] until we get this taken care of,” Esocbar said. “I’m drowning, and if I want to have a future, I’ve got to get this taken care of.”

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Are Student Loans Worth It?

Borrowers who want to pay off their entire student debt should look for the best loan terms, such as repayment period and interest rates. That may be with the federal government, or it could be better to refinance with a private lender, Harrison said. It is important to note, however, that once borrowers refinance their federal loans with a private lender, they are no longer eligible for future forgiveness under any federal programs.

Borrowers paying extra every month should be wary of not paying more toward their student loans than toward milestones like buying a home or starting a family, Harrison said. Additionally, understanding the language of federal student loan repayment and the different repayment plans is key to balancing student debt and achieving big milestones.

“Federal student loan debt doesn’t have to be something that prevents you from doing other valuable things financially,” Harrison said. “There are people who…are not able to expand their family, not able to buy a home, not able to start a business. But I do think that if you understand how [student loan repayment] works, it can be managed in a way that doesn’t prevent you from those objectives.”

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