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"Did You Know?" Series: Student Loans

Student loan debt is second only to mortgage debt in the U.S. It is growing at an exponential rate and doesn't show much sign of slowing down. When I first opened my firm, I had the vision to work with Gen X & Millennials (young professionals), as they, traditionally have not had access to high-quality financial planning advice. This meant having to be able to handle large amounts of student loan debt. If you're like most families, you have some of your own student loan debt and it likely requires you to make a hefty payment each month and have many years of payments remaining.

Now you've probably heard a "Financial Advisor" or possibly an older "wiser" relative give you advice on how to pay this off. Maybe you've been told that paying large chunks of this debt so you can pay it down as quickly as possible is the best approach. You may have heard that reconsolidating at a lower interest rate is a good idea for your loans. What most families don't realize is that student loan debt is very unique in itself and should never be handled like other debt. Student loan debt is complex and every person's situation is different. So what's the best approach? A professional student loan analysis! Now if you only have a few thousand dollars of debt left and can afford to pay it down fast, then, by all means, pay it off because it can likely be eliminated in the very near future. But if you have tens of thousands of dollars of student loan debt, then you will likely benefit greatly from a professional analysis. There is no simple 3 step process for approaching student loans. It just doesn't work that way. But there are likely ways to reduce your payments, lower the interest, or in time, have the loan forgiven entirely! But you won't know which benefits you are missing out on until you do the analysis.

Many families pay as much money as they can afford each month to reduce this liability and in the process, they neglect to contribute to their retirement accounts. It's easy to understand how this can hurt you down the road. Now again, every person's situation is different (which is why you do the analysis). Oftentimes, a student loan analysis working in conjunction with a financial plan shows the most appropriate loan paydown, while at the same time being able to put money aside for retirement. Does it make sense to put off a potential 10% return in the market to eliminate a 4-5% debt? Almost never! You simply can't argue the math! This is just one of many examples of how a proper financial plan that incorporates student loans the right way can be of great value to you and your family.

Most and I do mean the vast majority of financial planners don't offer a student loan analysis because it requires extensive additional education. Other advisors will give you the typical, pay as much as you can each month approach, which is generally (not always), bad advice. So do yourself a favor and invest a few hours of your time to figure out how to best approach your student loan debt. A few hours today could mean retiring years early tomorrow!


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