Am I eligible to refinance my student loans?

Student Loan Debt Statistics and Financial Strategies for 2018 and Beyond

student loan debt statistics

Numbers tell a story, and when it comes to borrowing for college, it’s important to know what the numbers say about the expense as well as the overall value of pursuing a college education.

In the U.S., 44 million borrowers carry $1.4 trillion in student loan debt. According to Experian, "Student loan debt for Americans is impacting all generations in regards to credit scores, debt load and delinquencies."

While these statistics may seem staggering, it is worth mentioning that individuals with a college degree earn significantly more over the course of their lifetime, and higher student loan debt also correlates to those earning advanced degrees.

So how do you tackle your financial obligations while setting yourself up for long-term financial stability? After all, like many borrowers, you may be planning for major life events such as buying a home, getting married, or starting a family.

We’ll start with some basic statistics, and top it off with good advice on balancing your finances, including when refinancing your student loans may be the right option for you.

Four-Year Degree Holders Have Higher Income, Lower Unemployment Than High School Graduates

You’ve been hearing it all your life – getting an education means higher income – and the statistics continue to back up this assertion.

After analyzing figures from the U.S. Census Bureau, the Pew Research Center found that the median full-time annual income for millennials (aged 25-32) in 2012 was $45,500 for those with a bachelor’s degree and only $28,000 for those with a high school diploma.

The unemployment rate among this same group was 3.8 percent for those with a bachelor’s degree, while those with a high school diploma had an unemployment rate of 12.2 percent.

Even more striking is that the income gap between those who have a bachelor’s degree and those who don’t has steadily grown since the 1960s, but most markedly since the mid-1990s.

Demographics of Today’s Student Loan Borrowers

If you feel like you’re the only person trying to manage the financial burden of student loan debt, rest assured, you are not alone. In 2016, about four out of 10 adults under 30 reported student loan debt, and that number increases to five out of 10 for those with bachelor’s degrees.

Here’s a breakdown of the average debt load in 2015:

< $5,000 approx. 8.9 million borrowers

$10,000 - $25,000 approx. 12.4 million borrowers

$25,000 - $50,000 approx. 8.4 million borrowers

Student loan debt in America tops a trillion dollars, with the greatest number of student loan borrowers between the ages of 25 and 34 (15.2 million borrowers), and those with the most debt between the ages of 35 and 49 ($490.2 billion). It’s no wonder that borrowers’ plans for the future – including home ownership, starting a family, and saving for retirement, as well as college funds for their own children− often get delayed as they try to keep their heads above water.

Though most borrowers are out of debt by age 50, those in the 50-61 age bracket are still responsible for $194 billion in outstanding student loan debt.

How Does Student Loan Debt Affect My Future?

It’s easy to see that student loans impact millions of individuals in America. While earning a degree often increases earning potential, you may be worried about the impact your student loans will have on your plans for the future. Here’s some helpful advice to keep in mind when looking to achieve your personal goals while carrying student loan debt.

Can I buy a house while paying off student loans?

The short answer is yes. But know that student loan debt definitely factors into a lender’s decision of whether to approve you for a home mortgage.

According to the U.S. Consumer Financial Protection Bureau, a 43 percent debt-to-income ratio is the highest you can have and still be approved for a qualified mortgage. Of course, the lower the ratio the better. Your debt-to-income ratio is the total of your monthly debt obligations divided by your gross monthly income (gross = before taxes and deductions).

If you have unsecured consumer debt (credit cards, personal loans), try to pay it down before starting the home buying process because it will affect your debt-to-income ratio. "Most Americans have way too much debt and need to eliminate it," says Daniel L. Grote, CFP, a Certified Financial Planner and Partner in Latitude Financial Group, LLC in Denver. "It has power over their ability to function and puts their livelihood in jeopardy."

Grote recommends an aggressive "snowball" approach to knock out consumer debt: "You pay off all debt in order of the smallest balances first to quickly develop early success," says Grote. As each debt is paid off, the former payment amount is diverted to the next debt. "The amount being sent to each succeeding creditor becomes larger and larger with the elimination of the smaller debts." The feeling of progress can help you stay focused on your goal.

Advice from Realtor.com states that one of the best ways you can prepare to buy a home is to get your student loan payment plan in order, ideally by consolidating or refinancing your student loans before looking for a mortgage, and possibly also setting up an income-based repayment plan.

What About Saving for Retirement?

Should you even think about saving for retirement when you have student loan debt? Don’t underestimate the power of starting your retirement fund early in your career. The compounded interest you can earn on contributions you make now will be difficult to attain if you wait until your 30s, 40s, or later to start saving for retirement.

"Most people will want to contribute something toward a retirement account, even if it's just enough to get the [employer] match at first," says Derek Hagen, CFP, CFA, a Certified Financial Planner and founder of Fireside Financial, LLC in Minneapolis. "It's easy to put off saving for retirement because it's so far in the future, but that time is also your best friend when it comes to saving. Get that money working for you."

Refinance Student Loans to Get Your Finances Under Control

Forbes advises that if you want to refinance student loan debt, find out your credit score – you want it to be at least 700. Also, keep these important numbers handy: your regular income, amounts of your other debt payments (mortgage, credit card, auto), your debt-to-income ratio, and proof of employment. You’ll also want to be sure you can locate all your student loans.

Armed with these figures, you can begin comparing terms and offerings from various lenders that specialize in consolidating and refinancing both federal and private student loans.

Grote says that reviewing your overall financial picture should be a routine thing: "Building a personal financial plan isn’t a one-time event. Your plan should be tended to regularly, no less often than annually with monthly budget analysis."

Student Loan Debt Relief

You didn’t accumulate your student loan debt overnight – so don’t feel overwhelmed by the sheer numbers in these statistics. Taking the time to organize your student loan debt can help you to continue moving forward on personal goals and major life events.

You have options and a bright future, and we’re here to help you find your way.

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Am I eligible to refinance my student loans?