Originally published: October 6, 2023 (distributed by Andrews McMeel Syndication)
If you are one of the 27 million people who have federal student loans outstanding, get ready to start repayments. The hiatus that began in March 2020 during the COVID-19 pandemic is now ending.
Let's go through some stats.
Student loan debt (including federal and other lenders) totaled $1.57 trillion in the second quarter of 2023, according to the Federal Reserve Bank of New York's Center for Microeconomic Data's Quarterly Report on Household Debt and Credit (tinyurl.com/4cedss5c).
Resuming payments will have a ripple effect on personal budgets and planning. Three out of four borrowers said that resuming student debt repayments will impact their ability to save for retirement, according to an August 2023 Corebridge Financial/Morning Consult survey of more than 2,100 federal student loan borrowers (tinyurl.com/5aetd5r7).
And it's not just younger workers who are affected. Twelve percent of workers who are at least 45 years old have student loan debt, a Nationwide Retirement Institute survey of 1,001 workers 45 and older conducted in August 2023 reported (tinyurl.com/2xm4s7ew). Twenty-nine percent in the 35-to-44 age group also had student loan debt, while 44% of those in the age group of 22 to 34 had student loan debt, according to the survey.
Sixty-six percent of the workers 45 and up who have student loan debt agreed that "The reinstatement of student loan interest and payments will significantly affect my ability to save for retirement." And 61% concurred that "The reinstatement of student loan payments has negatively impacted my financial stability and long-term planning," according to the survey.
What about other types of debt?
Credit card debt reached a record high of $1.03 trillion in the second quarter of 2023, an advance of 4.6% from the previous quarter, according to the Federal Reserve Bank of New York's report on household debt and credit. Total household debt increased by $16 billion in the second quarter to $17.06 trillion.
Paying off credit card debt has become a greater focus for employees, according to a recently released Bank of America Workplace Benefits Report involving surveys of more than 1,300 employees conducted in the first half of 2023 (tinyurl.com/nafp3rpz).
When asked about financial priorities, 16% considered paying off credit card debt as a financial priority, up from 11% in a 2022 Bank of America survey. Also, 13% cited saving for the unexpected, up from 8% in 2022.
What declined in the financial priority listing? Sad to say, it's saving for retirement, down to 31% in June 2023 from 45% in 2022.
Missed opportunities for retirement savings were on the minds of those 45 and older in the Nationwide survey, 74% of whom participate in a 401(k) plan. Eighty-eight percent said they realized now that delaying retirement saving can "significantly impact" their financial stability in the long run, while 72% said they regretted not taking saving for retirement more seriously during their younger years.
But regret doesn't motivate people who need to save and invest -- most especially the younger population that can benefit from compounding.
If you are facing financial challenges caused by debt or not starting to save early enough, there are resources for help on all fronts. For information on federal student loans, including the restarting of payments and the on-ramp transition period, a key resource is the Federal Student Aid website, which is part of the U.S. Department of Education (tinyurl.com/55x9mtrd).
For personal finance issues such as controlling your spending and managing debt, the Financial Industry Regulatory Authority (FINRA) provides information and worksheets (tinyurl.com/4fsncnfp), and the Consumer Financial Protection Bureau also has information on debt management (tinyurl.com/wk2t6n2s).
As for saving for retirement, if you can't afford to contribute to your 401(k), you may be able to change your W-4 withholding to cover your 401(k) contribution without greatly affecting your take-home pay. See the article I wrote on the 401(k) Champion Resources page titled "Answers to Key Questions" for more details (tinyurl.com/2pc9rskv).While at the website (401kchampion.com), apply to compete for this year's 401(k) Champion Award. The award seeks to honor people who not only maximize their 401(k) benefits, but also inspire others to do the same.