More than 43 million Americans owe money in student loan form. And the average federal student loan borrower has a balance of over $37,000.
But many people graduate college with a much larger balance than that. And if you're not careful, your student loans could be the thing that stops you from getting to retire when you want to.
When student debt upends your plans
When you're at an age when you're looking at signing student loans, you may not exactly be focused on retirement. But it's important to know that if you take on too much debt, it could affect your retirement plans down the line, not to mention impede other financial goals.
In a recent New York Life survey, 22% of respondents said they think their student debt will get in the way of their ability to retire at their desired age. And it's easy to see why that might happen.
If you take on a massive pile of student debt and your loan payments monopolize your income for many years, you might struggle to find money to save and invest in a 401(k) or IRA. The result? You might reach your preferred retirement age with a nest egg that's sorely lacking, forcing you to keep working to build up more cash reserves before wrapping up your career.
How to make sure your student debt doesn't wreck your retirement plans
A big reason student debt can get in the way of financial goals like retirement is that interest can really add up and make your debt expensive, especially if you take on a lot of it and end up paying off your loans over a lengthy period of time. To be clear, it's totally possible to take on student debt and still retire, buy a home, and do the many other things you want to do. But you'll need to be strategic every step of the way.
To start, aim to minimize your debt. To do that, you may need to stick to a less expensive college or consider two years of community college followed by a transfer to a four-year school. You might also consider working part-time during your studies so you don't have to borrow as much, or working and paying back some of your loans as you go.
Then, once you graduate, you'll need to tackle your loans strategically. Many people are tempted to extend their repayment plans to lower their monthly student loan payments. This might seem like a savvy thing to do, but it generally means racking up more interest on your debt, which just costs you more.
Plus, the longer you have a loan payment you're responsible for, the longer it might take to free up money for other goals, like retirement. So a good bet is to try to pay off your debt in 10 years (the standard repayment period for federal student loans) or less.
Even if you aren't able to contribute a dime toward retirement while you're paying off student loans, if you graduate college at 22 and are student debt-free by 32, that still gives you a good three decades to build up a nest egg. But if you let your debt linger into your 40s or beyond, you might also put off 401(k) or IRA contributions for longer, leading to a shortfall and forcing you to delay retirement.
All told, student debt is unavoidable for a lot of people who want a degree. But do your best to borrow minimally and pay off your loans quickly so they don't mess with your retirement plans.