Channeling money into a retirement fund in your 20s and 30s can pay big dividends when it’s time to stop working. But a new AICPA poll finds student loan debt is increasingly weighing on adults in the United States. Half of Americans who have student loans or whose children have student loans said they or their children are delaying contributing to a retirement account because they need the money to make their monthly loan payments. This represents a 22% increase since 2013.
Eighty-one percent of respondents said they or their children are making personal or financial sacrifices to help pay off their student loans. Many respondents said they or their children are postponing milestones such as getting married (20%), buying a home (40%), and starting families (19%) because of their debt.
“College is often viewed as a stepping stone to the American dream. However, the way education is funded could actually wind up delaying home ownership, getting married, and having children—hallmarks of that dream,” Gregory Anton, CPA, CGMA, chair of the AICPA’s National CPA Financial Literacy Commission said in a press release.
The size of this debt on a national level—exceeding $1.3 trillion and growing about $2,700 a second, according to the Federal Reserve—is truly eye-opening, said Sean Stein Smith, CPA, CGMA, a member of the AICPA’s National CPA Financial Literacy Commission.
“Student loans and student debt have been high-profile topics of conversation for years, but quantifying the sheer size of this burden, both for individuals and on a national level, illustrates just how serious this issue truly is,” said Smith, who is a financial analyst at Joint Venture Finance at the Hackensack University Medical Center. “That reality highlights just how important it is to understand financial literacy and establish healthy financial habits for spending, saving, and investing.”
Having a firm financial foundation contributes to a sense of stability and peace of mind, especially given trends that show Americans are working for more employers and experiencing more than one career in their lifetime, he said.
Almost half of survey respondents with student loan debt or whose children have student loan debt said they’re working additional jobs (46%). Over a third said they or their children are cutting living expenses by moving in with family members (37%) while four in 10 said they or their children are living with roommates (40%). The findings are part of a phone survey of 1,005 U.S. adults conducted in March by Harris Poll on behalf of the AICPA.
Seven out of 10 respondents (71%) said they would reconsider their higher education decisions. Thirty-six percent said they wished they’d attended community college for their first two years of school, and 34% said they wished they’d chosen a public school instead of a private school.
“Recent graduates can face sticker shock when they get their initial student loan bill in the mail,” Anton said in the press release. “Understanding the loan details and their financial obligations post-graduation will allow students to make a personal payment plan and prepare them for the trade-offs they will have to make until they’ve fully paid off their loans.”
The AICPA’s National CPA Financial Literacy Commission recommends several steps when considering how to pay for college:
Look for ways to reduce the cost of college. Before taking out a loan, investigate other ways to pay for college such as scholarships, grants, military aid, and employer tuition reimbursement programs. Families should submit an application for federal aid (FAFSA) as soon as possible after Jan. 1 each year to improve the chances they’ll receive funding.
All loans are not equal. Learn the differences between direct subsidized and unsubsidized (Stafford) loans, Perkins loans, Direct PLUS loans, and private loans from commercial lenders. Some offer lower interest rates and better repayment terms than others.
Find repayment terms that will work for your lifestyle after graduation. Work with a professional such as a CPA to evaluate the best option for repayment, whether that’s using a standard repayment plan, graduated repayment plan, extended repayment plan, income-based repayment plan, or loan consolidation.
Plan for the worst-case scenario. Understand the implications of not being able to repay the loan. Even declaring bankruptcy will not relieve borrowers from many types of loan debt.
For more information about paying for college, visit the AICPA’s 360 Degrees of Financial Literacy website.
—Samiha Khanna (firstname.lastname@example.org) is a freelance writer based in Durham, N.C.