Get Serious About Managing Your Student Loan Debt

The Squeeze

• Today, 14 million Gen X and Millennials are carrying student loan debt into midlife.

• Refinancing your student loans is an essential first step to finally paying them off.

• Even with outstanding student debt, saving for retirement must be a priority. Make a plan to do both.

Student loan debt is a financial reality — and a heavy one at that — for millions of young adults just setting out from college. However, many people in their 30s, 40s, and 50s are also still repaying student loans, all while trying to save for their kids' college educations, manage their parents' needs and squirrel away money for retirement. 

Sound familiar? Perhaps you're among the estimated 14 million Americans aged 35 to 49 still paying down their student loans. Not-fun fact: A recent study by New York Life found that it took respondents 18.5 years, on average, to pay off their student debt versus the “expected” 10.

Whether you graduated in the '80s, '90s, or '00s, no doubt you came out of school with the best intentions of paying your loans fast. But life happens. Perhaps you made income-linked payments when your salary was low and your rent was high. Maybe you took advantage of forbearance after a job loss or most recently, to benefit from federal COVID-19 relief measures in the last few years. 

Whatever the reason, that debt lingers — and you’re not alone.

"I have many clients who are still dragging their student loan debt around with them," says Kristin O'Keeffe Merrick, financial advisor at O'Keeffe Financial Partners. "What happens is, you take these loans when you're 18 or 20 years old, and you don't pay much attention to them: you pay the minimum, or you go into forbearance during grad school, and grad school adds to the debt. Then you wake up in your late 30s, and you have six figures of debt. By that time, you have a mortgage and kids, you're trying to save for your own kids' college — and you just make the student loan part of your monthly overhead." 

Perhaps it's time to do more than the monthly minimum. After all, devoting more funds to your debt now can help you avoid the worst-case scenario in the future — as in, bringing that debt into retirement. If that sounds scary, consider this: If you are in default on student loans and over age 65, the federal government can take up to 15 percent of your Social Security benefit — a devastating blow for many a retiree's budget.

Debt mitigation should always be a financial priority, says Merrick, even if you have to give yourself a psychological push to do it. "I think what happens is that you become almost numb to this debt," she says. "You don't even notice it anymore. Maybe you have low interest rates. The debt doesn't impact your life, so you're not attacking your loans." 

But that head-in-the-sand approach won’t make your debt disappear any time soon. Here we offer different approaches to consider, depending on your age.

Managing Student Loan Debt in Your 30s and 40s

By now, you may know the common wisdom that student loans can boost your credit score if you meet the monthly minimum payments. (More on that in a minute.) Student loans are considered "good" debt, so all credit considered, you should always prioritize paying down "bad" debt, such as high-interest credit card debt, before aggressively paying down these loans. 

And yet, you should still be savvy about your loans, which includes refinancing for a lower rate if you haven’t already. "I don't view student loans as bad debt, necessarily, but you should have a low interest rate," notes Merrick. "Know what your debt is, know what your interest rates are on the debt, and if it makes sense to refinance, do it." (Although interest rates are on the rise, it is still possible to refinance student loan debt at favorable rates.)

After making sure you have the best possible interest rate on your loans, create a plan for paying them off as aggressively as your finances allow. 

"You should be paying your loans down faster than the loan company wants you to," says Merrick. "Don't just pay the minimum if you can afford to pay more — double it if you can — and aim to pay a lump sum toward the debt once or twice a year. You'll reduce the timeline of your loan, the interest over the life of the loan, and save yourself money."

But what about retirement savings versus debt? When it comes to deciding which takes priority, the answer is retirement — but only by a bit.

So you need to prioritize your retirement savings even as you're chipping away at your debt. If you are fortunate enough to work for a company with a retirement plan and company matching contributions, then you must immediately dig in and contribute the max — that matching fund is free money that will collect interest until you retire. 

But we get it. Carrying student loan debt into your late 30s and early 40s can be a mental and emotional burden you want to dump. But panicking and trying to wipe it out at once can lead to bigger mistakes. Merrick says she talks to people all the time who tell her they cashed in retirement savings — such as an IRA — to pay a student loan (or credit card) debt. That's a big mistake, she says, both in terms of potential fees and future taxes. As with all things, savvy planning and goal-setting is key. 

Says Merrick: "Don't get hyper-focused on one goal and abandon the other ones.”

Managing Student Loan Debt in Your 40s and 50s 

If you’re looking at financial aid forms for your high schooler while still paying off your own student loans, here’s what you need to know: saving for retirement must stay front and center in your budget, even as that first tuition bill looms. Indeed, now is the time to hit reset on your budget overall, as in asking yourself: what nonessentials can go to pay down my debt and keep my retirement savings flush? 

Now is also the time to start throwing financial windfalls — such as an inheritance or a big tax refund — at those student loans, rather than redoing the kitchen or going on an expensive vacation. 

And if you're considering taking on even more student loan debt in the shape of cosigning student loans for children or grandchildren, this is an absolute no, advises Merrick. (Co-signing student loans has become common practice: a recent AARP study found that 45 percent of survey respondents had done so, with 25 percent of co-signers reporting that they have had to make at least one payment on the loan.) Instead, help your children find colleges that will find them attractive and offer scholarships, or consider the popular (and affordable) route of having your children attend a community college for two years, and then level up into a fully accredited university once they are more clear on their career goals. (And once you see that your children are up for the challenge of college.)

It's important to remember when juggling financial priorities that only you will be able to pay for your retirement, while your children can get student loans. If this sounds harsh, consider that becoming a financial burden to your children as they are starting families and careers is even harder than having to figure out how to pay for college on their own. 

Instead, make sure your financial oxygen mask is fully operating so that you can help others in your family going forward. Says Merrick: “You have to focus on your retirement. Put on your own mask on first."