The bad news just never stops rolling in when it comes to the student loan crisis. New reports are giving more details on how higher education debt can negatively affect retirement savings. Researchers with the financial website NerdWallet are arguing 75 will become the new retirement age for debtors with $35,000 in loans who graduate at 23 years old. This is only assuming debtors are making the average starting salary of $45,000 a year and are saving 6 percent of expenses for retirement.
NerdWallet analysts are arguing loan debtors can cut five years off their retirement age by living at home with Mom and Dad for two years after graduation. Graduates who live at home for two years can retire at 70 instead of 75 if they save 10 percent of expenses towards retirement. Lowering housing costs, such as finding roommates, can also help former students and graduates save for retirement.
While the reasons student loans affect retirement are obvious, the solutions for avoiding this situation are not. It can be difficult to save for retirement when staring down monthly payments of several hundred dollars every month. However, there are solutions.
How Federal Loan Borrowers Can Save for Retirement
Graduates and former students can save for retirement by finding ways to reduce monthly payments. Borrowers with federal student loans can take advantage of income-based repayment options, such as the REPAYE or income-based repayment programs.
Depending on which option borrowers decide to use, monthly payments can be capped at 10 to 15 percent of their discretionary income. If borrowers use an income-based plan and enter public service loan forgiveness, remaining student loan balances can be forgiven after 10 years of timely payments.
We really hope this information can help. Nobody should have to spend sleepless nights believing it was a mistake pursuing a college education, and that retirement is impossible.