People saving for retirement (those ages 55 to 64), and
retirees (ages 65 to 74) are carrying unprecedented amounts of student loan
debt, according to a new LIMRA Secure Retirement Institute study. The amount of
debt for pre-retirees and retirees has soared. For instance, in 1989,
pre-retirees held an average of $600 in education loans and by 2013 that amount
grew to nearly $8,000. The average education loan debt for retirees increased
from $400 in 1989 to more than $2,300 in 2013.
The data suggests that parents and grandparents have
acquired more student loan debt to help their children and grandchildren,
according to LIMRA Security Retirement Institute. And that’s a problem. So what
do financial planners make of this trend? And, more important, what advice do
they have for pre-retirees or retirees who now have student loan debt or plan
to acquire such debt?
First, avoid it if
possible
Most financial planners recommend avoiding any type of debt,
including student loans for your children, if you’re close to retirement or
already retired. “Don’t do it,” said Scott Hanson, a certified financial
planner with Educators Financial Services, in Shoreview, Minn. By way of background,
more than 40 million Americans of all ages are now repaying more than $1.2
trillion in student loan debt, according to the Consumer Financial Protection
Bureau (CFPB). By way of comparison, there was $7.4 trillion in individual
retirement accounts (IRAs) at the end of the fourth quarter of 2014 and $6.8
trillion in 401(k) and similar plans.
Student loan for
yourself?
Others, however, suggest that if you’re taking out a student
education loan for yourself and for the right reasons, it might make sense. If, however, you’re among those taking out a
student loan for yourself, consider working longer to pay off that debt before
retirement, or returning to work if already in retirement.
Look for alternatives
There are other alternatives to get a college degree without
assuming the burden of student loans, said Fillet. Also, apply for every
scholarship possible and every grant possible. And don’t’ forget work. “There
is no reason the student could not work especially in the summer and holidays
to help defray the costs,” Fillet said.
If you must
If you have no choice but to take out a student education
loan to pay for your child’s or children’s, or grandchildren’s college education,
consider that you have options, including — depending on your credit history
and other factors — the Direct PLUS Loans from the U.S. Department of
Education.
According to the Education Department, Direct PLUS loans are
unsubsidized loans for the parents of dependent students and for
graduate/professional students. PLUS Loans help pay for education expenses up
to the cost of attendance minus all other financial assistance. Interest is
charged during all periods.
Don’t cosign student
loans
Whatever you do, don’t sign for a student loan on behalf of
your children. That would be a mistake, said Fillet.
Best advice: Start
saving when they’re born
Of course the best advice is to start saving when the child
is born and continue to save for education at the same time you are saving for
retirement, said Fillet. Fillet also
said parents should revisit the use of whole life insurance, which is a
“wonderful savings vehicle for those who find savings difficult.” Fillet also
noted that retirement should be a time of joy, and not one focused on
installment payments.
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