💫The financial fog of student loans: 3 ways student debt shapes the lives of 20-Somethings
Does your 17-year-old really know the financial impact of their college decision? Their college choice will define their next four years, but if borrowing to cover the cost, the real impact is the shadow that it will cast on the decade following graduation.
The Burden of Student Loans
Student loans are a double-edged sword: they open doors to education and opportunities but also come with a hefty price tag. Recent stats show that the average student loan debt for the Class of 2023 was over $30,000[1]. For many graduates, this debt is a persistent and daunting financial burden, impacting their financial decisions and life plans.
1. Home Ownership: The Distant Dream
For many in their 20s, buying a home seems like an elusive dream. High home prices and interest rates, combined with hefty student loan payments, make it increasingly difficult to save for a down payment.
- Debt-to-Income Ratio: Lenders often look at the debt-to-income ratio when considering mortgage applications. High student loan payments can push this ratio to levels that disqualify many from securing a mortgage.
- Saving Challenges: With monthly student loan payments eating into their budgets, many young adults struggle to save for the substantial down payment required for home ownership.
2. Saving for Retirement: A Postponed Priority
Retirement might feel like a distant concern when you're in your 20s, but the earlier you start saving, the better. However, student loans often push retirement planning down the list of priorities.
- Competing Priorities: Monthly loan payments and the immediate costs of living often take precedence over long-term savings.
- Missed Opportunities: Delaying retirement contributions means missing out on the benefits of compound interest and employer match programs, which can significantly affect your future financial stability.
3. Marriage: Love in the Time of Debt
We know that the decision to get married is influenced by various factors, but financial stability plays a large role. Student loans complicate this decision by adding financial strain and uncertainty.
- Financial Stress: Student loan debt can contribute to financial stress, which can impact relationship dynamics and delay marriage plans.
- Joint Financial Planning: The burden of student loans can complicate joint financial planning and impact decisions about shared expenses and long-term financial goals.
Think twice when borrowing, and know the cost before your child makes their decision. By planning proactively, you can pave the way toward leading them to success after graduation. How much is too much in student loans? Here's a rule of thumb.
Have questions on how to plan for your child?
CLICK HERE to book a time to chat.
All the best,
Andrew Holmes, Certified College Planning Specialistâ„¢
Andrew@PlanWithFPS.com
617-630-4978
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.
[1] https://www.cnn.com/cnn-underscored/money/average-student-loan-debt#:~:text=Among%20all%20borrowers%2C%20the%20average%20student%20loan%20debt%20in%202023,who%20owe%20%2480%2C000%20or%20more.