Generation X (those who are now aged 37 to 50) is often called the sandwich generation because they are growing their families while caring for their aging parents at the same time.
But I’m going to call baloney on another sandwich this generation is forced to eat.
More than any other generation, they are still paying student loan debt for their own college and graduate education while also paying for their children’s student loans and college expenses.
And, it’s affecting their retirement savings, most of all.
The trend (and sandwich) continues to grow
Data from Credit Sesame’s six million members shows that just about 30% of Gen X Credit Sesame members are carrying student loan debt averaging $32,518. And, in a random sampling of 2,000 Credit Sesame members polled recently, 20% said they were currently paying expenses for at least one child in college, and 27% of those are paying for more than one child’s college tuition.
“This is the first time we are seeing two sets of student debt in one generation,” explains Heather Jarvis, a lawyer and student loan expert who trains certified financial planners and families alike to make the best possible choices about student loan debt. “That’s because Gen X took out loans for expensive educations for graduate and professional degrees that take 20 years or more to repay, so they are still paying when their children are college age.”
Forty-five-year-old (Gen X) Jarvis has been paying her student loan debt of $125,000 from her Duke University law school education since graduating in 1998. At first, she paid a staggering $1,500 per month, which included both Federal and private student loans, and now it’s currently down to $300 per month. But now, she’s also got a daughter who’s a junior in college for whom she is paying college expenses on top of her own student debt payments.
Statistics from the New York Federal Reserve bear out the trend: Those over the age of 40 account for 35% of education debt caused by longer repayment schedules, returning to school for advanced degrees and additional borrowing for children’s education.
So what if you are currently paying both, like Jarvis and like Pete Abilla, self-employed CEO and founder of the tutoring marketplace, FindTutorsNearMe.com, and father to nine children? Abilla, 40 years old with a Master’s degree from The University of Chicago, has only recently begun paying his $100,000 undergrad and graduate student loans to the tune of $890 per month, while also paying approximately $1,200 per month for tuition for his first college-age child, a freshman at Brigham Young University.
Savings and retirement on the back burner for these Gen Xers
With student debt payments like that, it’s no wonder retirement is on the back burner for both Jarvis and Abilla.
But, Jarvis says Federal student loan allowances that extend the length of repayment can give you much-needed time, but can be expensive over the years as interest accrues.
“Growing our family and building my career has been the priority. However, over all these years I didn’t pay, I am worried to know how much the loan has grown,” says Abilla. “Now, the deferment periods are up and I have consolidated them all as best I can and begun paying.”
The 2015 Financial Literacy Survey conducted on behalf of the National Foundation for Credit Counseling on over 2,000 adults earlier in 2015 found of those who are repaying their own student debt or their children’s educational debt, the majority (58%) were unable to fund emergency or retirement savings or purchase a car as a result of those payments.
Fact is, Gen X has the lowest confidence they will be able to retire comfortably and the lowest average retirement contribution according to the 16th Annual Transamerica Retirement Survey, which polled 4.550 workers earlier this year.
“We are saving a small bit towards retirement, but not as much as I know we should be at this age,” said Abilla, who does have a cash emergency fund, and no other credit card debt.
When it comes to college savings for the kids, research by Pew Charitable Trusts found Gen-X parents still paying off student debt save an average of $4,000 for their children’s college expenses, compared to the average $20,000 saved by parents not paying student debt.
Jarvis, too, has saved less for retirement and her kids’ education expenses.
“The expense of student loans has influenced my finances my entire adult life. I have less disposable income, I save less for retirement than I’d like and I even drive an older car than I would otherwise,” she says. “More of my current income will go to my children’s college expenses because I couldn’t save for it while paying my own student loan debt.”
Abilla agrees. “We did not have any formal education savings for our children, so we will pay for it out of my current income as each child comes of college age and hopefully there won’t be too much overlap,” says Abilla.
Speaking with your college-age child about college expenses helps share costs
In the Credit Sesame survey of parents who pay college expenses for at least one child, 85% spoke with their college child about paying for college and discussed their (parent) contribution, student loans, the child’s contribution, financial aid, scholarships and getting a job to help pay expenses.
Abilla says this type of conversation helps control and share college expenses.
“My wife and I set clear expectations that we will pay for tuition if they choose a school we can afford and that each child can pay their own room and board,” he explains. “I don’t want my kids to be saddled with debt like I am, but I do want them to learn grown-up responsibility.”
Abilla’s daughter works as a freelance writer to support herself while going to school. Jarvis’s daughter received a large scholarship that covers most of her tuition and her parents have allowed her to take some fixed, low-interest, affordable Federal student loans to contribute to the balance of the expenses they pay.
Jarvis also has a senior and a sophomore in high school coming up to college age.
“There will be some tricky overlap for us. But, through hearing my student debt story, my children are much more aware of what we can all afford and they don’t want to borrow more than they need.”
The Credit Sesame survey found that 61% of those paying college expenses for one child are paying under $10,000 and, just like Jarvis and Abilla, 40% said they would work longer and harder to help pay for their child’s college.
But what about retirees facing $36 billion in student loan debt
A recent report from the Federal Reserve Bank of New York has people talking about Americans aged 60 and older who owe billions of dollars in student loans.
Wait a minute. Senior citizens? Student loans?
That’s right. And what’s more, older borrowers are seeing their social security checks garnished for repayment of delinquent student loans. Some of the debt is new, taken on when the borrower decided later in life to go back to school. Some of the debt has been hanging around for years, with balances growing while the borrower struggles to keep up with payments. Still others borrowed on behalf of a child or grandchild.
What’s the Education Really Worth?
Most students at every age enter the workforce saddled with debt that will take decades to repay. This is true across all demographics, and even for people who “should” know better when it comes to making sound financial decisions. Ben Bernanke, Chairman of the Federal Reserve, recently reported that his own son will finish medical school with a whopping $400,000 in student loan debt. Many analysts are now openly questioning the long term worth of the education these loans buy. That said, a medical degree can realistically expect to command much more money than, say, an undergraduate diploma in Peace and Conflict Studies or even a traditional degree majoring in English Language and Literature. But that’s a large debt for anyone, doctor or not.
Michelle Singletary of the Washington Post frequently advocates evaluating job prospects before choosing a field of study, a school to attend and an amount of debt to take on (if any). When it comes to choosing a practical major, she says “A college education is not an investment in your future if you are taking out loans just for the college experience.” The truth is that some college majors are worth more than others. Find out what the prospects are for your chosen course of study and choose carefully.
Consequences of Borrowing Too Much
Beware. Don’t fall into a student loan trap. Before you borrow money, whether federally-backed or from a private lender, you should know that it’s virtually impossible to get rid of student loan debt except by paying it back. Student loans can’t be included in bankruptcy, unless you can show that your student loan payment is an undue hardship on you — which is extremely difficult to prove unless you are physically unable to work . If you default on your loan, the lender can – and will – garnish your wages, social security payments, and even some disability payments, as well as keep all or some of your tax refund dollars for as long as you are in default.
You might be eligible for loan forgiveness if you enter into public service, teaching, law enforcement or certain other industries. In tough economic times you might also be allowed to defer payments. But beware of deferments. An unsubsidized loan will continue to accrue interest. Your pay-off amount continues to grow.
Before You Apply for a Student Loan
Before you take on student loan debt for your own education or cosign for anyone else, do the research and do some math. Start by identifying any and all ways to pay for the education without taking on loans. Learn how to find free money with scholarships and grants. If you must consider taking out a student loan, look at it from every angle. Is it a payment you’re willing and able to commit to for 20 years? 30 years? Is the degree likely to result in a job that will earn ample income to cover the payment in addition to all of life’s other expenses, including retirement savings? If you can’t avoid borrowing, can you qualify for a federally subsidized student loan, usually with terms much more advantageous than those offered by private lenders?
Finally, use available tools to help you make an informed decision. The Consumer Financial Protection Bureau offers a Know Before You Owe interactive tool on their website. Seeing the total cost of school and the monthly payment you can expect to face may lead you to seek out options that won’t hold you hostage for decades.
Don’t give up on your retirement
So why are so many Americans still saddled with student loans so late in life? Some have loans that linger from their own post-secondary education, either from decades ago or from a more recent degree. Others carry loans taken for a child’s education—maybe the borrower took out PLUS loans or financed the child’s college expenses with a personal loan through their bank. Still others are financing their grandkids’ tuition. Many college savings funds took a dive after the financial crisis and what grandparent wouldn’t want to help ensure that the next generation has the opportunity to obtain a college education?
If you are nearing retirement or already retired, and have some form of educational debt, here are some tips to help you deal with and eliminate this financial burden:
Save for your own retirement first. There are no loans for retirement so if you haven’t retired yet, stash away some of your income in your Roth IRA or 401K as soon as you get paid.
Look for alternative ways to fund college. Strategies will vary depending on the age of the students in question. Are they eligible for loan forgiveness by working in a qualifying job in an inner city or rural area? If the kids are still in high school or college you have several options besides taking out student loans. Encourage them to apply for scholarships, take up a part-time job, postpone college for a year and work full-time to save up, and find work-study programs and grants that will further reduce costs.
Make the minimum payments. Even if the loan was for someone else’s education, if it’s in your name you need to stay current on the payments. In fact, if you fail to make the monthly payment, the government could garnish your Social Security payments—something that can and does happen. In 2013 a record 156,000 retirees saw a decrease in their benefits from Uncle Sam because they had outstanding student loans. Put the student loans in your debt payoff plan and get rid of them as soon as you can. The loans that the federal government guarantees can’t be dismissed in a bankruptcy, so they’re with you for the long haul.
Get a part-time job. The bad news is that you’ll have less free time, but the good news is that it won’t take long to pay off $2,300 (the average amount of debt) working part-time. Babysitting, tutoring, pet sitting, general handy work and housecleaning are all jobs that you can do on your own, no boss required. At $15 an hour and working 12 hours a week, you can have the debt paid off in about four months.
Instead of this…
Don’t add more debt. The last thing you want to do is take more uncertainty and risk into your retirement. This season of life is filled with so many variables, but the decision to take on debt is one you control. Create and stick to a budget that shows you where your money is going so that you have control over it, and not the other way around.
Don’t take money from your retirement accounts. Removing money from earmarked retirement accounts comes with a hefty financial penalty if you’re still a few years shy of the minimum distribution age. Unless you’re past that age, don’t touch the account. However, if you have had enough birthdays to access the money penalty-free, feel free to use it.
Don’t despair if you have debt from your or your kids’ education. Once you get on a budget and make a plan to pay off the debt, you’ll be able to work yourself through it so that you can enjoy days that are filled with doing what you love, not worrying about how to make next month’s Sallie Mae payment.