Managing your finances at any age can be a balancing act, but it can be even more difficult if you have student loan debt.
With President Joe Biden's announcement of the cancelation of up to $10,000 in federal student loan debt (up to $20,000 for recipients of Pell Grants) for borrowers making less than $125,000 annually and couples earning less than $250,000 per year, many people currently repaying federal student loans may see some relief.
But that forgiveness may only cover a small amount of what many borrowers owe—millennials, in particular, have an average of $38,877 in student loan debt, according to research by Experian. And that total can be significantly higher for anyone who completed business, medical or law school.
Paying off your student loans may feel like an urgent priority, but it's also important to start building wealth and saving for retirement as early as possible. Juggling short-term goals with planning for your financial future doesn't have to be the biggest money migraine as long as you follow these steps:
1. Understand what you owe
Many people with student loan debt have multiple loans with different terms and repayment plans. Make a list of your loans, including the overall amount, interest rate (including whether the rate is variable or fixed), the minimum payment, the due date and the loan term. Review the interest you'll pay for the entire loan term. That may give you an incentive to pay off some of your loan debt early.
2. Don't ignore other financial goals
Student loan debt often has a relatively low interest rate, so it's not a terrible idea to keep paying it over time in order to leave room in your budget for other financial goals. Establish your emergency fund first, pay down any higher interest debt, and begin saving for other life goals, such as a down payment for a house.
3. Save for retirement
If your employer offers to match a percentage of your retirement savings, it's important to save at least as much as the match to make sure you don't leave money on the table. Even if you make a relatively small contribution to your retirement savings, that money will have time to grow and make a difference for your future. This is especially true for millennials, who have years to go until retirement.
4. Take advantage of parental support
If you're a recent graduate, you may be living at home or might be able to stay on your parents' health insurance plan. Use that support to kickstart your finances and save more for retirement and other goals along with paying down your student loan debt faster, if you're able.
5. Consider the pros and cons of loan consolidation
While consolidating multiple loans into one private loan may simplify your loan repayment, be sure to compare the interest rate you're offered with the average interest rate of the loans you have. If you extend your repayment period, you're likely to pay more in interest over the life of the loan, so it's important to weigh that against potentially reduced payments.
6. Check out loan forgiveness options
Between President Biden's federal loan forgiveness plan and legislation around student loan debt that continues to evolve, you may be eligible for loan forgiveness based on your type of loan, how many payments you've made, or what type of career you've chosen. However, most of these programs are available for federal student loan debt rather than private student loans. Before you look into loan consolidation, find out whether you might be eligible for forgiveness for some or all of your federal loan debt in the future.
7. Create your own repayment plan
The psychological boost of paying off a smaller loan in full can be worthwhile if you need a push to tackle your student loan debt. In general, though, it's best to focus on the loan with the highest interest rate, paying off a little more each month while paying the minimum amount on any other loans.
While it can feel like student loans are a significant financial barrier, it is possible to pay them down while also saving for retirement. Following these seven steps can help you make progress toward planning for your financial future.