[vc_row][vc_column width=”2/3″ el_class=”section section1″][vc_column_text]People with student loans need to not only pay their balance but also budget for saving for retirement at the same time. Who would say this? Financial experts.
Having to budget for both things can definitely be stressful when the average student loan payment is just under $400 a month at $393. That is almost 20 percent of an average American’s salary after taxes. But apparently, there is good news to be shared! Saving for retirement can bring down your student loan payments if your repayment program is federal income-based.
Most of the federal repayment programs calculate your payment based on your adjusted gross, which is after taxes. If your gross pay is lower, your monthly student payments will also go down. Payment plans that are eligible are listed below:
Income-Based Repayment Plan (IBR)
Revised Pay As You Earn Repayment Plan (REPAYE)
- Also Read: 3 Reasons Certain Federal Employees Can Retire Years Earlier Than Their Peers Without Penalties
- Also Read: CSRS Retirement in 2024: Are You Making the Most of What This Classic Plan Has to Offer?
- Also Read: Roth IRA Basics for Beginners: What’s There to Learn?
Pay As You Earn Repayment Plan (PAYE)
Saving money into an investment plan, such as a 401(k), or a retirement savings program using pre-tax money is a great and easy way to lower your monthly gross to bring down your loan payments. You also end up putting money towards your retirement future.
Depending on the situation, the student loan payment can be lowered anywhere from $100 to $300. If your job offers matching contributions, that will also be extra money going into your savings and towards your future.
If you have put in the maximum amount of $19,000 into your 401(k) this year, you can still lower your taxable income by saving money into a FSA (Flexible Spending Account) or by claiming business-related expenses if self-employed or if you own a business.
And if your income is lowered, you may be eligible to deduct the loan’s interest. For those with qualifying student loans, the IRS will deduct the interest paid on the loan for your taxes for the same year. However, to qualify for this, your gross income needs to fall under $70k a year.
Now, we need to be clear on one thing, that even though lowering your payments will help you now, this will extend your repayment period on the amount of interest that you will be paying in total. The longer the repayment period, you may double your interest rate over the life of the student loan. This is especially the case if your monthly payment does not cover the interest. If that is your situation, lowering the monthly payments of your student loan will increase your total loan balance in the long run, which will make it more of a challenge to pay it off.
You may also want to consider some of the results that were founded through research from TD Bank, which shows that people with student loans have a tendency to put off many milestones of life. Over one third–36 percent–of survey participants said that they have delayed buying a home, while others have pushed off marriage (21 percent) and having children (26 percent) due to their student debt.
Even though lowering your loan payments now will help out, it may be best to just take care of the debt as much as you can now than to push it off for later.[/vc_column_text][/vc_column][vc_column width=”1/3″][vc_single_image image=”36443″ img_size=”292×285″ style=”vc_box_shadow”][/vc_column][/vc_row]
