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How to handle student loan debt

Kelly Kowalski, Cliff Noreen, and Bronwyn Shinnick

Posted on February 12, 2024

Our executives and experts team up to write educational articles, covering a variety of financial topics such as life planning, college savings, and retirement.
How to handle student loan debt
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Give you pointers on approaching student debt in a way that balances with other life demands.

Note the importance of understanding different kinds of debt when setting a reduction plan.

Point out why debt elimination shouldn’t trump other financial efforts

College graduates entering adulthood and starting careers are handling significant levels of student debt.

The average student loan balance among millennials — people born between 1981 and 1996 — was $34,504 at the beginning of 2019, according to a survey by credit reporting agency Experian. Due to the pandemic, there was some relief for certain kinds of student debt. But such relief is ending and graduates will have to establish repayment strategies.

Student loan debt is burdensome, but not impossible to manage. Given the right guidance and approach to budgeting and financial planning, you can take steps to reach your financial goals.

It starts with figuring out where your student loans stand in relation to your overall debt load and coming up with a plan for repayment. This includes educating yourself on savings and investment options.

Know your finances

Everyone should start with setting a budget. It’s an essential guide to figuring how much money should go toward necessities versus discretionary items. (Related: How to set up a budget)

After you've budgeted day-to-day expenses, consider stashing away three to six months’ worth of expenses in cash in an emergency fund, such as a savings account.

Then, you can start to figure out how much you can put toward reducing your student loan debt. Of course, you may have other debts to consider as well. When prioritizing which debts to pay first, it’s important to take into account interest rates. Find out which of your debts have the highest interest rates and pay those down first.

Although you may not think of paying down your debt as an investment, it is. And it’s actually a relatively safe one, because it prevents interest from continuing to add up. That’s why it’s important to target the debt with the highest interest rates first.

Another common strategy is to pay off your smallest debt first, and then work your way up to the larger ones. It’s also good to consider exceeding your minimum payments and avoiding late payments. Doing this also helps reduce the cost of the loan in the long run, since you will be paying less interest. (Related: Managing debt in a balanced way)

Where your student loan debt falls within these considerations depends on the amount outstanding and the interest rate. And you may want to investigate whether those parameters can be altered through repayment plan options, as well as the possibility of assistance plans from your employer. (Related: 5 tips for handling student loan debt)

In addition, there is the possibility of refinancing student loans. Such a move could possibly lower your monthly payment. It could also reduce the total interest you pay over time, help you get out of debt faster, or some combination of both, depending on the provider and the terms.

Overall, it’s important to remember that not all debt is necessarily bad.

  • It’s true that bad debt that doesn’t add value to your bottom line, such as credit cards or auto loans, can tether you to past purchases by draining your pockets.
  • But good debts, such as student loans or mortgages, can serve as investments that can offer a return over the long run. (Related: Understanding good debt versus bad debt)

Regardless, paying off debt in a timely fashion can also help you establish a good credit rating, which is critical for everything from buying a home to obtaining insurance.

Saving and investing your money

When you’re ready to invest your money, how you decide to do it will depend on considerations like your risk tolerance, your financial goals, and how much you've saved. (Related: Investing basics)

If you haven’t yet opened a retirement savings account, you should consider starting one. Retirement accounts, such as a 401(k) through your employer or an individual retirement account (IRA), offer tax-advantaged savings. In the case of 401(k)s, many companies today will match part of your contribution. That’s free money!

It’s important to start contributing as early in your life as you can because the younger you are when you start saving for retirement, the more time your money will have to compound and grow.

Despite student loan debt or other financial challenges, the good news is that because of your age, time is on your side. If you start making small, positive steps with each paycheck, you can make tangible progress toward securing your financial future.

Plan for life changes

It’s important to remember how quickly life can change between the ages of 23 and 38. Just like everything else in your life, from your address to your hairstyle, how you allocate your money may change over the years, too.

Remember to take a look at your financial strategy with each milestone you achieve — whether you get promoted, get married, or have a child. (Related: The 5-10-15-20 financial goal concept)

Indeed, some financial moves, like setting up a 401(k) or IRA or buying certain kinds of life insurance policies, can offer more advantages the earlier you make them. (Related: How to build wealth)

The key for you as a millennial is to begin assessing your finances early and to continue to review them as your life changes.

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The information provided is not written or intended as specific tax or legal advice. MassMutual and its subsidiaries, employees, and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.