Paying off student loans without sacrificing your long-term financial health

Strategies for keeping college affordable.

You don’t need us to tell you how the cost of getting a college education has gone through the roof. According to the latest College Board’s “Trends in Higher Education” report, the average tuition and fees totaled $27,020 and $37,650 at public out-of-state and private four-year institutions, respectively, for the 2020-2021 academic year.¹

For many, that has meant they’ve had to borrow money for the education they want. 69% of bachelor’s degree recipients borrow money to attend college, either from the government or from private lenders.² And, the debt numbers are staggering. The Federal Reserve Bank of New York reported student loan debt at $1.55 trillion.³

Today, Americans (maybe you’re one of them) may make serious sacrifices to keep up with their loan payments. According to The Pew Charitable Trusts, many people saved less for retirement or put off major expenses, such as purchasing a home or pursuing additional education, in order to pay their student loans.⁴

COLLEGE EDUCATION: A GREAT LONG-TERM INVESTMENT.
Remember, even though costs continue to go up and many incur debt, a college education remains a great long-term investment.

Here’s why.

Based on the College Board’s latest “Education Pays” report, individuals who worked full time with just a bachelor’s degree earned $17,800 more annually after taxes than high school grads. The college educated are more likely to be employed full-time (83%) than high school graduates (69%). Also, individuals ages 25-34 with a bachelor’s degree are less likely to be unemployed full time (2.2%) than high school grads (5.7%).⁵

STUDENT LOANS: A SERIOUS MEDIUM-TERM FINANCIAL BURDEN.
Whether you’re paying off student loans now or thinking about taking out a loan for college, or a parent getting ready to send your child to college, there are several avenues to explore to help mitigate the impact college debt has on meeting your long-term financial goals.

EXTEND THE LIFE OF YOUR LOANS.
If your repayment plan is less than 20 years and you are a recent graduate with tight finances, it may make sense to see if your lender(s) will extend repayment to 30 years, thus lowering your current out-of-pocket expenses.

REDUCE YOUR INTEREST RATES.
Almost every student loan lender (including the Department of Education) has some kind of interest rate discount for people who set up direct deposit. Usually, it’s around 0.25%. Lenders prefer direct deposit because it increases the likelihood that you’ll make payments on time. While 0.25% may seem insignificant, over your loan’s life a 0.25% discount could knock off a big chunk of the interest you’ll pay. Check with your lender to see if it has any other interest rate deductions. Some lenders may be willing to reduce your interest rate if you have a high credit score or a history of on-time payments.

CONSOLIDATE YOUR LOANS.
The federal government and some private lenders offer consolidation loans. In some cases, you can also reduce your interest rate with one of these consolidation loans.

SEE IF YOU QUALIFY FOR INCOME-BASED REPAYMENT.
If you have a federal loan and you are on a limited income, the government’s income-based repayment plan allows you to pay based on what you earn, not on what your loan payments are supposed to be. Under the program, most borrowers with loans issued since October 2007 are eligible to participate and may have some of their student loan amounts forgiven after making a certain number of qualifying payments. Speak to your student loan service provider for information.⁶

GET HELP FROM YOUR EMPLOYER.
There are several programs in place that help you pay back student loans. Some are through employers, while others are public-service oriented. People who work full-time in public service can have their eligible remaining federal student loans discharged after 10 years, thanks to the Public Service Loan Forgiveness program. The U.S. Office of Personnel Management’s Student Loan Repayment Program allows government employees to receive up to $10,000 a year in assistance paying back federal student loans.⁷ There are loan repayment support programs available for nurses, teachers, and members of the military as well. And some private employers have programs. Ask your Human Resources representative.

LIFE INSURANCE.
It’s important to remember that should something happen to you, your family may be responsible for paying back your loans. Consider life insurance as a way to protect your family from having to bear that burden.

¹“Trends in College Pricing and Student Aid 2020,” CollegeBoard, October 2020.
²“A Look at the Shocking Student Loan Debt Statistics for 2021,” Student Loan Hero, January 27, 2021.
³“Household Debt and Credit Report (Q4 2020),” Federal Reserve Bank of New York, February 2021.
⁴“Borrowers Discuss the Challenges of Student Loan Repayment,” The Pew Charitable Trusts, May 20, 2020.
⁵“Education Pays 2019,” CollegeBoard, January 2020.
⁶“If your federal student loan payments are high compared to your income, you may want to repay your loans under an income-driven repayment plan.” Federal Student Aid, 2021.
⁷“Policy, Data, Oversight, Pay & Leave, Overview” U.S. Office of Personnel Management, 2021.

This information is courtesy of New York Life Insurance Company, used with permission. It is intended for general information only. Neither New York Life Insurance Company nor your group provide tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions. ©2021, New York Life Insurance Company. All rights reserved.