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It turns out that recent graduates are not the only ones being hammered by large amounts of student loan debt. More seniors than ever before are heading into retirement still paying off their student loan debt. In 2005, seniors had about $3 billion in student debt. Last year, they had almost $20 billion. So why are seniors hanging on to their student debt for so long?
Rising cost of college: One of the main reasons that seniors still have student debt after decades of being out of school is that college is an expensive investment, and the cost of higher education just keeps rising every day. Keep in mind that those going into retirement now are baby boomers, two to three generations before the current graduating class. College was cheaper back then. The graduating class of today is even more likely to carry their student debt into retirement.
Easy deference: Unlike a mortgage or car loan, it is easy to get deferments and extensions on your student loan if the are federal loans, which can be helpful if you are in a financial jam. The problem is that people don’t realize that when they defer paying their loan, the interest on the loan is still building, meaning that they are going farther into debt. When you defer payments on your loan, you are guaranteeing that you’ll be making payments for longer, especially if you are making the minimum payment each month.
Interest rates: People don’t pay attention to the interest rates on their student loans. They figure that they owe a certain amount on their loan and they just need to pay whatever the lender tells them to. A strategy that experienced money people employ is to consolidate their loans in order to lower the interest rate. Your student loans may have a high interest rate, but if you have good credit, you can usually refinance your student loans for a lower rate, which means you’ll be paying less money in the long run. We’ve compiled an exhaustive list of the best student loan refinancing companies here.
If you don’t have good credit but still want to consolidate your loans to lower your interest rate, you can contest negative items on your credit reports via the credit bureaus. Or, you can hire a credit repair company to help you raise your credit score.
Don’t take on too much debt in the first place: If you haven’t started college yet or have kids that plan to go to college, it is smart to start planning now. Set up a college fund. It costs less to save now than pay interest on debt later. You can also set up a 529 college fund for your future student. The best of these that we’ve found is the UPromise program, which is a credit card that adds money to your 529 account every time you use the card on certain purchases. If you are spending money anyway, might as well contribute to your child’s education. Here are some other tips on saving money for college.
Avoid deferring your student loan payments: This is a big one. If you are already out of school and making payments on your student loans, don’t be tempted to defer the loans if you can avoid it. The longer you defer making payments on the loan, the longer it is going to take to pay it off. You can also try to consolidate your loan to drop the interest rate, so you aren’t paying as much in interest. Check out our online loan reviews here.
Set an end goal and stick to it: Don’t just pay the minimum amount that the lender suggests. The longer it takes to pay off your loan, the more interest you are going to be paying. Set up a smart goal of when you want to be student debt free and adjust your payments for that goal. You’ll end up paying less interest and you can avoid carrying your student debt into retirement with you.
Lower your interest rate: During your lifetime, if you have good enough credit to consolidate or refinance your student loans under a lower interest rate, do that. It could end up saving you thousands of dollars in interest. Check out online loan services like Credible or SoFi, which often have lower rates than standard banks, and specialize in student loan refinancing. Check out our review of Credible and our review of SoFi to get a better idea of how the services work.
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