In each new installment of the Sum180 Webcast, we discuss issues around your money and share tips to help you reach your goals.
We’re talking about the student loan crisis.
Total student loans are now at $1.2 trillion. I don’t know about you but that number alone was not enough to make me appreciate the crisis. What did is when we began learning first hand at Sum180 that student loan debt is a very real personal crisis for 25% of people of all ages in the country.
A quick review of the data:
- Average student loan debt of people in the Millennial generation – $26,000.
- Average for the class of 2015 – $35,000
- Gen X is working down its student loan debt but it is picking up mortgages at the same time – total debt $142,000
- (This number surprised us) 11% of all outstanding student loan debt is held by Baby Boomers, and it is starting to affect their retirement
I’m especially thinking one of our members, Dora, 52 years old. She has a solid emergency fund, a house and the beginnings of her retirement nest egg – and one big problem: $142,000 in student loans in default
How did this happen?
Once you start missing payments, interest and collection charges start adding up. The clock never stops ticking. Thirty years later, you get numbers like these.
What do you do?
It might feel hopeless but there is a way forward, and here’s the key:
Dora’s debt payment should be no more than 20% of her income, which gives her room to also do other savings and investments.
Her Sum180 Plan calculated 20% of her income, subtracted other debt payments she had to make, and recommended the rest be used to steadily pay her student loans.
Dora was pleasantly surprised with this because this number was doable and made her feel like there was a light at the end of the tunnel.
She felt better having this plan because she knew her financial security would never be real as long as the student loans were hanging out there.
I think Dora also felt better because she was no longer facing this crisis alone.
A question from our community
We have time for a question tonight, and it is from Lauren, a 28-year old residential realtor in the Midwest. Lauren asked:
I found a fixer-upper that I know is a good investment, but I still owe $18,000 on my student loans. Should I pay all of that off before I go ahead with this?
As we heard from Dora’s Plan, 20% of your income should go to debt payments.
In Lauren’s case, her income supported her regular student loan payments and a small mortgage on the fixer upper. She felt better because she really wanted to move forward on the house.
It also worked out great because she found out a month later that she was pregnant, so made plans to make that fixer-upper her new family home.
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