We often hear about how millennials are putting off important life milestones in order to repay their student loans. They’re living at home with their parents longer, waiting to get married, delaying having children, and putting off saving for retirement.
For some millennials, this is because they’re barely able to make the monthly payments on their student loans because they’re underemployed. But many others are deciding to prioritize repaying their student debt in order to get debt free sooner and are putting any additional money that they have towards their student debt. It makes sense; after all, the average debt per graduate exceeds $28,000.
For those who hate the idea of carrying debt, it seems like a good strategy and one that is likely to save them money – but will it? Not necessarily. In fact, it can often be a better personal and financial strategy to take a longer time repaying debt and not delaying life milestones.
Saving for Retirement
When it comes to saving for retirement, you shouldn’t wait. That’s because the sooner you start putting money aside, the longer that money has to grow. As that money grows, the interest earned on the original investment starts to generate interest and that accelerates growth.
In fact, it’s an oft-repeated financial parable that if you are able to put aside $100,000 before you turn 30 then you can invest nothing else towards your retirement and still have more saved than someone who started at 30 and put aside $10,000 per year until they retired.
There are also other great reasons not to wait. For example, if your employer offers you matching money for your contributions to a 401(k) you should take advantage of that. By not making contributions, you are leaving money on the table and giving up the opportunity to double your money immediately via the match.
Another reason to invest rather than repay your loans is that typically retirement investments generate greater returns that your student loans charge in interest. That means that you will come out further ahead if you put that money into investments rather than paying off debt.
Children are expensive so it makes sense to delay having them if you’re drowning in student loan debt, right? While you should have the financial resources in place before having children, waiting to have children until later in life has costs. You increase the likelihood that your child has medical issues or that you could suffer from infertility. Both scenarios would have personal and financial costs involved. Also, if you always envisioned yourself having children at a young age, giving up that dream has a cost to your happiness. If the choice is between paying off your student loans aggressively or having children, then you should spend some time thinking about what is right for you.
There are a number of reasons why people might wait to get married until they pay off their student loans. If you’re waiting because you can’t afford a wedding – it probably makes more sense to have a scaled back ceremony and start your life together sooner rather than later. Student loans can take a long time to repay and you can potentially save money on taxes by filing jointly if you marry that you could put towards your student debt to accelerate your repayment.
But if you’re on an income-based repayment plan be careful. If you file your taxes jointly, your future spouse’s income could increase your payments or disqualify you from income-driven programs.
Buying a Home
In the same way that it can make sense to invest for your retirement rather than pay off your loans at an accelerated rate, it can also make more sense to buy a home rather than continue renting. That’s because you could build equity and make money if your home increases in value while paying back your student loans.
While it can be more difficult to save up a down payment and qualify for a mortgage if you have significant student loan debt, before you give up on your dream of owning a home sooner rather than later, sit down with a calculator or a financial planner to see if it makes financial sense to buy a home now.
The Bottom Line
Sometimes our feelings about student loan debt get in the way of us making rational and beneficial personal and financial decisions. While we might want desperately to make that final payment on our student loan debt and be debt free, having that as your sole focus could get in the way of living a full life and building your net worth.
Rather than putting off life milestones until you pay off your debt, it often makes more sense for you to change your perspective and pay off your debt more slowly. In some cases, this means restructuring your repayment plan. This can be done in several ways. Signing up for an income-driven repayment program may be one method. On the other hand, you could trying contacting banks that consolidate student loans to see if they offer relief. These options depend on where you are financially however, so it takes some research to know if they could actually benefit you at all while moving forward in life.