Why It Matters:
  • Help new alumni start their careers with smart strategies for managing student loan debt.
  • Relieve stress over student loans by showing how they could balance saving with paying off loans.
  • Help clients weigh the trade-offs of paying down debt ASAP or paying just the minimum.

Add retirement funding to the growing list of things affected by student loan debt.

A 22-year-old graduating with $40,000 in student loan debt could have hundreds of thousands of dollars less at retirement than those who are debt-free and can invest more in a defined contribution plan, according to a study by the LIMRA Secure Retirement Institute.

Clients may think they’re giving their children peace of mind by helping them pay down their student loans. But you may want to discourage clients from bailing their children out entirely, especially if it means clients have to raid their own retirement savings.

While students can find relatively low-interest loans for college, the same doesn’t hold true for retirement.

And there may be other strategies families can use to manage student loan debt and relieve financial stress.

3 steps for financial professionals to consider

Every family is unique when it comes to saving and paying for college. Here are just three conversations you can have – with the whole family – as they think about the future.

  1. For families with students about to enter college: One step students are taking to make college more affordable is staying in state for college. About half of students are living at home to save money, according to Sallie Mae, which began as a government-sponsored enterprise to support student loans but is now a consumer banking business. About 1 in 4 are trying to earn a degree faster, and 1 in 3 are going to community college as a first step toward a bachelor’s degree.
  2. For those who have started: Believe it or not, it’s possible to find a job that can help you pay off student loans. That’s something worth considering if a student is still deciding on a major. Loan help also may be available to those in public service, including those who serve in the military.
  3. For those who have graduated to the real world: Looking at college graduates’ overall finances, including loan details and whether they have any debt with higher interest rates, can help you offer them better guidance.

If they have debt with a particularly low interest rate and their portfolio could reasonably be expected to provide returns at a higher rate over time, you can help them explore whether they should focus on paying the minimum on their debt and putting the leftover cash into a retirement savings plan.

Is college worth the money?

As higher education gets more expensive, your clients might be asking if the diploma is even worth it. The short answer: It is.

College graduates are earning average hourly wages of $19.18 while high school graduates are earning average hourly wages of $10.89, according to the Economic Policy Institute. Unemployment rates over the past few years have been lower for those with a college degree than for those who graduated high school and started looking for work, according to the institute.

See what other people are saying about managing student loan debt.

Things to Consider:
  • Discuss the steps Sallie Mae discovered that students are taking to manage college costs.
  • Let families know about programs or careers that can offer help with loan forgiveness or paying down student loan debt.
  • Help relieve the stress of student loan debt by reminding them there may be strategies that can help them pay it all down while still saving for retirement.