5 Mistakes Millennials in Student Loan Debt MakeMarch 10, 2020
Do you have student loan debt? You’re not alone. In fact, 45% percent of millennials are currently dealing with student loans. The average student loan debt amount for the 2018 graduating class was $29,800 per student. With this info in mind, it may come as no surprise that 17% of millennials surveyed regret taking on student loans, according to Bankrate’s May 2019 Financial Survey. But student loans don’t have to be something you regret! After all, they helped you obtain higher education and that’s a major accomplishment. Here are 5 mistakes to avoid while in student loan debt to brighten your financial future.
1. Not saving for retirement
You may think that you can’t afford to save for retirement while making student loan payments. Or even if you can save, you think retirement is so far off that you can wait to save after your student loans are paid off. However, that’s a huge mistake that could cause you to lose out on thousands of dollars. The earlier you can start putting money away for retirement the better because even a small amount in the beginning is better than nothing. Let’s take a look at an example to see just how powerful saving early can be.
The fix: Let’s say you start saving $60 a month in a retirement account. How much difference can this really make? If you start saving $60 per month at age 23, assuming an interest rate of 7% and increased contributions when your income increases, you could amass $230,417 by the age of 66. But if you wait until age 33 when your loans may be paid off you would only have $106,605 at the age of 66. Starting earlier increases your savings by $123,812!
2. Not understanding the specifics of their student loan debt
Maybe when you obtained your student loans you were just trying to get your tuition paid and didn’t give a second thought to the terms of your loan. This could be costing you a lot of your hard-earned money. It’s important to know the interest rate of your loan, whether it’s fixed or variable, and the loan’s repayment term. If you have a variable rate your payment could rise if the interest rates rise. Therefore, it’s important to know what you’re facing.
The fix: Read your latest statement or call your loan provider to get the details on your loan. Once you have that information it may help you avoid the next mistake on the list.
3. Not finding the best student loan repayment options
Just because you have student loan debt doesn’t mean you can’t save some money while paying it off. There are a lot of different repayment plans and programs that can help you save money monthly or over the life of the loan.
- If you have federal student loans, an Income-Driven Repayment (IDR) plan may be a good option if you are having a hard time making your loan payments. With an IDR plan, your payment is based on a percentage of your income and your loan term is extended from the standard 10 years to 20 or 25 years in some cases. But be aware that extending your loan length means you will be paying more in interest over the life of the loan.
- Student Loan Forgiveness: There are different programs available to have some or all of your loans forgiven based on your sector of work. If you work for a qualifying nonprofit or government entity and have federal loans you may be eligible for Public Service Loan Forgiveness if you are on the required payment plan. It may pay off to do some research on whether you are eligible for any forgiveness programs.
- Student Loan Refinancing: Refinancing is obtaining a new loan to pay off your student loan(s). Your new loan presumably has a lower interest rate and can save you money monthly, as well as the total amount you pay. Student loan refinancing can be an easy process with the right company. At ELFI you get a personal loan advisor to help you through the process of refinancing your student loans. To refinance you have to meet minimum qualifications based on your income, credit score and credit history, along with other ELFI student loan refinancing eligibility requirements. Check out our student loan refinance calculator to see what you could potentially be saving.*
The fix: Evaluate whether you qualify for any forgiveness programs, if not refinancing may be a great option to not only lower your monthly payment but also save you money in the long term.
4. Not saving for emergencies
It’s not if an emergency will happen but when. Whether your car has an issue or you end up with unexpected medical bills, it’s wise to put some money aside for when these instances occur. Nineteen percent of those surveyed in Bankrate’s May 2019 Financial survey regret not saving enough for emergencies.
The fix: Try to cut out going out to eat a few times a month (or any other non-essential expense) and put that money into a savings account for emergencies only. After a year you’ll have the beginning of a solid emergency fund. A good rule of thumb is to have an emergency fund with at least three to six months worth of your living expenses.
5. Incurring credit card debt
When you are just beginning a job after college your salary probably will not be as high as you expected. The average American millennial’s salary is $35,592 per year. With student loan payments and all the other expenses of life, it can be tempting to reach for a credit card to pay the expenses your income is not covering. However, credit cards come with high interest rates that will make getting out of debt harder.
The fix: Create a budget that covers all your expenses so you can begin living within your means and won’t have to rely on credit cards to make ends meet. If you need help creating a budget, this blog post will walk you through the popular 50/20/30 budgeting rule.
Having student loan debt doesn’t have to prevent you from living your best life and building a solid financial future. Make a plan and you can avoid these mistakes in the future!
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