US college debt now tops $1.7 trillion in the third quarter of 2021, according to the Federal Reserve. And it keeps a lot of people to realize their full potential, says Nicole Smith, a professor at Georgetown University and chief economist at the school’s Center on Education and Workforce.
The idea of delaying adulthood — delaying marriage, buying a home, and other important milestones — became mainstream after the Great Recession. In the age of Covid, it’s being pushed back yet again, Smith says.
“The age of economic independence has been pushed back from 26 to around 32 in our calculations,” she says, and “there are implications for exactly when you can launch your career and when you can launch you into adulthood”.
Student borrowers are more likely to have other types of debt
When the student loan repayment break expires on May 1, many borrowers will not have had to think about their federally guaranteed student loans for more than two years. This leeway has made a big difference for many people, according to the results of the recent CNBC + Acorns Invest In You survey: Nearly 2 in 5 respondents, or 39%, said the break on student loans had improved their lives.
Almost half, 48%, of people who stopped repaying their loans during the break used the money to pay for their daily expenses, according to the survey. This number was even higher for women and millennials, of whom 51% and 58% used the money for essentials, respectively.
According to the survey, student borrowers are also significantly more likely than people without student loans to have other types of debt in addition to their college bills.
They are 1.5 times more likely to have credit card debt and more than twice as likely to have medical debt as people without student loans.
The average monthly student loan payment is about $450 for undergraduate degree graduates and about $700 for master’s degree graduates, according to the most recent report from the Education Initiative. nonprofit education data, and reintegrating these amounts into monthly budgets may not be easy. for many borrowers.
These final months of reprieve are a great time to assess your overall debt repayment plan, experts say.
“They spend now not paying [student loans] to have to pay. So you have to flip the switch. You have to be ready,” says Janet Stanzak, certified financial planner and founder of Financial Empowerment in Minnesota.
Video by Stephen Parkhurst
Take advantage of the end of the moratorium to control your debts
The student loan moratorium has served as a much-needed break for many borrowers, but it is important to note that any payment one may make for a student loan before May 1 will go directly to reducing principal.
However, experts say there are plenty of other goals you might want to consider first, including paying off other types of short-term debt and padding your emergency fund.
Making a plan to dedicate funds to your retirement accounts, for example, can have better long-term returns than putting all that money into your remaining loan principal, experts say.
Video by Stephen Parkhurst
Using that money to pay off other types of high-interest debt, like credit card balances, might also be more useful to you in the long run, so you have fewer bills to juggle when payments resume.
Start devoting a portion of your budget to accounting for these upcoming payments and put that money into savings or other higher-interest debt. Creating a new, dedicated savings account just for that can be smart, Stanzak says, especially if you set up an automatic deduction on every paycheck. Then the money “goes from your paycheck to your student loan account.”
If you’re still not on a solid financial footing, experts suggest you ask your repairer about your options.
You may be eligible for lower monthly payments based on your Discretionary Income or a deferral of unemployment for up to 36 months. Both options, however, will extend the term of the loan.
More from Grow: