Undertaking Student Debt

If you think college savings years flew by fast, just wait until school begins.  One minute, parents are helping their children move into their freshmen dorm, and before they know it, their kids are walking down the isle at graduation and the college loans are due. 

According to a Wall Street Journal analysis of data from the latest-available Federal Reserve “Survey of Consumer Finances,” the ranks of those with student loan debt rose the most among upper-middle-income families—those earning $94,535 to $205,335 a year—jumping from 19.5% in 2007 to 25.6% in 2010. They owed an average of $32,869 in 2010, up from $26,639 in 2007, after inflation was taken into account.

So what is the best way to tackle student debt while simultaneously saving for retirement?  Getting organized is the most important step. “Saving for retirement and keeping kids afloat is a balancing act for every family to do on its own, and advisors can help. Since loans are paid over time, families can adjust the portion they will pay as their children become more financially secure. A lot also depends on whether a family has other children to put through college.” 

To stay on top of payments, experts suggest that borrowers set reminders two weeks before due dates.  Signing up for automatic debit from a bank account can reduce late payments, and many lenders offer interest rate reductions.  Making extra payments can be helpful, since neither federal nor private student loans carry prepayment penalties.  Avoid loan deferment and forbearance as it not only delays the problem but makes it worse.  “Borrowers facing long-term payment difficulties can consider plans that offer extended, graduated or income-driven repayments.”

See Jerilyn Klein Bier, Tackling Diploma Debt, Financial Advisor, Sept. 2, 2014.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.