Student loan debt now tops $1 trillion and exceeds both credit card and car loan debt, according to the Consumer Financial Protection Bureau. In a recent Citi/LinkedIn survey, student loan debt was cited as the #2 financial concern among professional women nationwide. Having enough money saved for retirement was #1 and having enough money saved to fund their children's education was #3. So, how do you pay off student loans when you need to manage other debts, fund your retirement and save for the future cost of your children's education? It starts with knowledge and a plan.
1. Know what you owe.
Betsy Mayotte, director of regulatory compliance at the nonprofit organization American Student Assistance (ASA), says to visit the National Student Loan Data System to access all account information related to your Federal student loans (Stafford, PLUS, and Perkins). If you have private student loans, pull a copy of your free annual credit report to see private loan creditor information and balance details. Using that information, create your own central document to track student loans, including how much you owe, monthly minimum payment amounts, and the loan terms (interest rates and whether they're fixed or variable). Once you see where you stand, you have a place to begin.
2. Learn how financial aid for your children will be calculated.
If you're concerned about saving for your child's future education, eliminating your own loans should take priority. Stephen Elias of Planet Tuition explains that though there is a definite benefit to saving for your child's future, college 529 accounts are generally low return -- especially compared to the interest you're paying on loans. Further, they're considered a parental asset in your child's financial aid calculation. In other words, if have a lot of money in this account, it could negatively impact what you ultimately pay for your child's college.
3. Take care of yourself first; then assist others.
To paraphrase the airline safety announcements, you can't help others unless you're able to function yourself. So, regardless of your student loans, your financial focus should be on your own security, including building up a cash emergency fund of at least six months' worth of expenses and prioritizing retirement contributions -- at least to the extent that your employer offers a "match." Devise a monthly budget using Citi® Financial Tools, and consider this allocation suggested by Pete Eliason, founder of Eliason Financial Associates, to help aggressively reduce debt: Devote 50% of your net income to necessities (housing costs, food, transportation, and minimum loan payments), 25% to discretionary spending (clothing, gifts, entertainment, and vacation), and 25% to short-term savings, retirement, and additional payments to student loans and credit cards -- starting with the highest interest rate.
4. Focus on terms as much as numbers.
Where you begin with your student loan debt isn't just about numbers. If you have private loans with a variable interest rate, focus on reducing those first before rates rise. Then move on to the loan with the highest interest rate, and work your way down.
5. Understand your options.
If you have Federal student loans, research repayment and debt forgiveness plan options that can mitigate the debt. For example, Mayotte points to income-based payment plans that consider your current financial standing. A woman with very high debt and low income, for example, might qualify for a repayment plan that reduces the monthly amount owed to $0 -- at least while she works her way up the earning ladder. (For the first three years, the government will satisfy the interest.)
Many other Federal student loan repayment and forgiveness options exist as well, including specific plans for government and city employees, teachers, attorneys, healthcare professionals, and nonprofit employees. (The ASA has compiled a detailed list of more than 60 consolidation and repayment plan options you might consider.)
If you have a private student loan, contact the lender who issued the loan and inquire about options for consolidation, which may help you secure a lower fixed-interest rate.
Women & Co., a service of Citi, is the go-to personal finance source for women. By providing financial content, commentary and community, Women & Co.'s mission is to get women thinking and talking about personal finance. Founded in 2000, Women & Co. is one of the longest running personal finance websites dedicated to helping women strengthen their financial futures.