Student Loans vs Retirement planning: Which should be your main concern?
For most college graduates, paying back student loans can prove to be daunting. Currently, the national total for student loans tops $1 trillion. According to Advisors, a group of web sites focused on planning and paying for college, the class of 2014 graduate had to pay back an average of $33,000, making them the most indebted class ever.1 Graduating from college and being saddled with substantial debt lead college graduates to ask themselves the “this or that” question: Is it prudent to pay my student loan debt faster, or should I begin to save for retirement?
This question poses a perplexing scenario because there are pros and cons to both decisions. College graduates that favor single-minded paying off student loan debt argue that their debt will prevent them from buying a home, starting a family, or having a debt-free conscience. College graduates that favor beginning retirement savings argue that solely paying off student loan debt for 10-15 years means you are 10-15 years too late. Both parties have valid points; however, college graduates that believe in beginning retirement savings are a more prudent and are more accurate in their thinking. Here is why:
'Good’ debt vs. ‘Bad’ debt
Nobody wants to be saddled with debt. However, it is essential for individuals to realize that it is almost impossible to avoid debt. The good news is all debt is not equal! Two types of debt exist: “good debt” is needful and defensible debt, while “bad debt” is unnecessary and indefensible debt (i.e. credit card debt and car loans.) Debt amassed from buying products and services that improve our ability to generate capital are considered 'good' debt. Carrie Schwab-Pomerantz, CFP, President of Charles Schwab Foundation, said, “Debt that is lower cost, and potentially tax deductible, such as a mortgage or a student loan, falls into the ‘good’ debt category.” 2 With student loans, you are allowed a small tax deduction for interest accrued on your student loans if your income is under $55,000 (single) or 110,000 (married.) The key is to eliminate ‘bad’ debt, while methodically paying off ‘good’ debt that is working for you.
Start your retirement savings now!
For retirement saving, many companies offer 401(k) plans. These are retirement accounts that your employer establishes for you. When you enroll, you decide to put a percentage of each paycheck into the account. The contributions you make are placed into investments that you select based on financial goals and risk tolerance. The great attribute about a 401(k) plans is that your contributions are tax-deferred and companies usually match your contributions.
To illustrate how to utilize and illuminate a 401(k) plan on the importance of starting retirement savings now, I will create a hypothetical situation about two women; their names are Monica and Jessie. Monica and Jessie graduated from college and landed jobs making $45,000 at the age of 22. Throughout their careers, their income will increase each year by a modest two percent. Monica believes that it is important to start a retirement savings now, while paying off her student loans. Conversely, Jessie is debt-adverse and decides she will simply pay off her student debt for the next ten years before starting to save for retirement. Monica begins a 401(k) plan in which she allocates ten percent each year; this plan also includes an annual five percent employee match offered by her corporation. Jessie starts at the same amount and same rate at the age of 32 after her student loans are paid off. Both individuals earned an annual five percent return on their investments each year. By the time they turn 65, Monica accumulated $1,341,576 in retirement savings, and Jessie, who waited ten years to start her retirement savings, accumulated $867,746 in retirement savings. As a result, Monica saved an astounding $473,830 more than Jessie in retirement savings. You can compare retirement savings to a race; either you will run a slow, steady pace and finish a champion or you will run a sprint near the end and finish average, below average, or worse - retired, poor and obscure. So start your steady pace today and cross the retirement finish-line a champion!
Prioritize student debt
Today, graduates routinely accumulate 75,000, 100,000, or 125,000 dollars in debt. Individuals who have a substantial amount of debt may feel discouraged and unconfident that they can afford to save for retirement. Here are a few tips on how to prioritize your student loan debt, while working to achieve your financial goals:
1. Focus on paying higher interest rate loans first. Typically, high interest rate student loans are between six and eight percent. As a result, high interest rate loans impede your ability to generate savings because there is a high risk that interest on these loans will outpace your savings.
2. If your student loans substantially exceed your salary, applying for the Income Based Repayment Plan (IBR) is an option. If you qualify, then 15 percent of your monthly check will apply to your student debt. For this option, retirement saving can play an essential role. As I mentioned earlier, the 401(k) plan is tax-deferred. This means if you earn 50,000 and you contribute 5,000 to your 401(k) then the government will only tax you on the 45,000. The IBR plan bases your minimum payments off of your taxable income, so the more you invest in retirement savings equates to less taxable income and lower student loan payments.
3. The IBR plan includes student loan forgiveness. According to their website, IBR will forgive all remaining debt after 25 years. For those who work in the public service sector, there is the Public Service Forgiveness, which will forgive all, if any, debt for those who work at certain non-profits or for the government. Although this is a reasonable option, it remains imperative for users to make payments on time. Missing payments or being late for payments can disqualify you from the plan. Therefore, it is best to make your student loan payments automatically from your check to ensure timely payments.
Overwhelming?
I hope I did not overwhelm you. Thinking about retirement savings and student loan debt can perplex anyone. Saddled with a significant amount of debt myself, I know the feeling all too well. However, do not be discouraged, with discipline and strategy; you can eliminate the burden of debt while retirement savings are maximized. The 50/20/30 rule is a great strategy to utilize when prioritizing student loan payments while striving to reach financial goals.
This is from here --.> http://samuellucasv.weebly.com/blog/-student-loans-vs-retirement-planning-which-should-be-your-main-concern
For most college graduates, paying back student loans can prove to be daunting. Currently, the national total for student loans tops $1 trillion. According to Advisors, a group of web sites focused on planning and paying for college, the class of 2014 graduate had to pay back an average of $33,000, making them the most indebted class ever.1 Graduating from college and being saddled with substantial debt lead college graduates to ask themselves the “this or that” question: Is it prudent to pay my student loan debt faster, or should I begin to save for retirement?
This question poses a perplexing scenario because there are pros and cons to both decisions. College graduates that favor single-minded paying off student loan debt argue that their debt will prevent them from buying a home, starting a family, or having a debt-free conscience. College graduates that favor beginning retirement savings argue that solely paying off student loan debt for 10-15 years means you are 10-15 years too late. Both parties have valid points; however, college graduates that believe in beginning retirement savings are a more prudent and are more accurate in their thinking. Here is why:
'Good’ debt vs. ‘Bad’ debt
Nobody wants to be saddled with debt. However, it is essential for individuals to realize that it is almost impossible to avoid debt. The good news is all debt is not equal! Two types of debt exist: “good debt” is needful and defensible debt, while “bad debt” is unnecessary and indefensible debt (i.e. credit card debt and car loans.) Debt amassed from buying products and services that improve our ability to generate capital are considered 'good' debt. Carrie Schwab-Pomerantz, CFP, President of Charles Schwab Foundation, said, “Debt that is lower cost, and potentially tax deductible, such as a mortgage or a student loan, falls into the ‘good’ debt category.” 2 With student loans, you are allowed a small tax deduction for interest accrued on your student loans if your income is under $55,000 (single) or 110,000 (married.) The key is to eliminate ‘bad’ debt, while methodically paying off ‘good’ debt that is working for you.
Start your retirement savings now!
For retirement saving, many companies offer 401(k) plans. These are retirement accounts that your employer establishes for you. When you enroll, you decide to put a percentage of each paycheck into the account. The contributions you make are placed into investments that you select based on financial goals and risk tolerance. The great attribute about a 401(k) plans is that your contributions are tax-deferred and companies usually match your contributions.
To illustrate how to utilize and illuminate a 401(k) plan on the importance of starting retirement savings now, I will create a hypothetical situation about two women; their names are Monica and Jessie. Monica and Jessie graduated from college and landed jobs making $45,000 at the age of 22. Throughout their careers, their income will increase each year by a modest two percent. Monica believes that it is important to start a retirement savings now, while paying off her student loans. Conversely, Jessie is debt-adverse and decides she will simply pay off her student debt for the next ten years before starting to save for retirement. Monica begins a 401(k) plan in which she allocates ten percent each year; this plan also includes an annual five percent employee match offered by her corporation. Jessie starts at the same amount and same rate at the age of 32 after her student loans are paid off. Both individuals earned an annual five percent return on their investments each year. By the time they turn 65, Monica accumulated $1,341,576 in retirement savings, and Jessie, who waited ten years to start her retirement savings, accumulated $867,746 in retirement savings. As a result, Monica saved an astounding $473,830 more than Jessie in retirement savings. You can compare retirement savings to a race; either you will run a slow, steady pace and finish a champion or you will run a sprint near the end and finish average, below average, or worse - retired, poor and obscure. So start your steady pace today and cross the retirement finish-line a champion!
Prioritize student debt
Today, graduates routinely accumulate 75,000, 100,000, or 125,000 dollars in debt. Individuals who have a substantial amount of debt may feel discouraged and unconfident that they can afford to save for retirement. Here are a few tips on how to prioritize your student loan debt, while working to achieve your financial goals:
1. Focus on paying higher interest rate loans first. Typically, high interest rate student loans are between six and eight percent. As a result, high interest rate loans impede your ability to generate savings because there is a high risk that interest on these loans will outpace your savings.
2. If your student loans substantially exceed your salary, applying for the Income Based Repayment Plan (IBR) is an option. If you qualify, then 15 percent of your monthly check will apply to your student debt. For this option, retirement saving can play an essential role. As I mentioned earlier, the 401(k) plan is tax-deferred. This means if you earn 50,000 and you contribute 5,000 to your 401(k) then the government will only tax you on the 45,000. The IBR plan bases your minimum payments off of your taxable income, so the more you invest in retirement savings equates to less taxable income and lower student loan payments.
3. The IBR plan includes student loan forgiveness. According to their website, IBR will forgive all remaining debt after 25 years. For those who work in the public service sector, there is the Public Service Forgiveness, which will forgive all, if any, debt for those who work at certain non-profits or for the government. Although this is a reasonable option, it remains imperative for users to make payments on time. Missing payments or being late for payments can disqualify you from the plan. Therefore, it is best to make your student loan payments automatically from your check to ensure timely payments.
Overwhelming?
I hope I did not overwhelm you. Thinking about retirement savings and student loan debt can perplex anyone. Saddled with a significant amount of debt myself, I know the feeling all too well. However, do not be discouraged, with discipline and strategy; you can eliminate the burden of debt while retirement savings are maximized. The 50/20/30 rule is a great strategy to utilize when prioritizing student loan payments while striving to reach financial goals.
This is from here --.> http://samuellucasv.weebly.com/blog/-student-loans-vs-retirement-planning-which-should-be-your-main-concern
What Does Your Financial Pathway Look Like?Summaries of the Individual Programs William D. Ford Direct Loan Program (often called Obama Student Loan Forgiveness by the media) The most broadly applicable student loan forgiveness program is the forgiveness under the William D. Ford Federal Direct Program also known popularly and in the media as the Obama Student Loan Forgiveness program, every direct loan in this program has forgiveness attached at the end of the term (this is mostly likely 20 to 25 years depending on which program you are eligible for). At the end of your consolidated loans term, any unpaid balance will be forgiven by the Department of Education. There are a variety of repayment options in the direct loan program, and provisions which allow for early forgiveness or principal reduction on your consolidated loan.
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What Our Client's Are Saying
Mary Beth
Took five years to complete my four year Bs degree. My parents were only able to put me through for 2 years and then I had no choice but take out loans to finish. Every semester tuition was raised by at least 500$ and available loan amounts decreased. I had a baby my last semester, finished and walked when he was 8 months. Left with a Bs and 15000 in debt to “begin creating a life for myself and my son”. Jobs in my field are difficult to come by and my degree isn’t even close to paying for itself and as I try to also provide for my son. It gets in the way of buying a house or even trying to get a reliable car. So far it has held me back a great deal.
Have one of our financial advisers reach out to you.
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About Us
Have you ever wished that your student loans would just go away? While there is no easy way to snap your fingers and have your student loan debt magically disappear, there are ways to get your student loan debt forgiven.