By Anastasia Taber, CFP®
However you slice the generations, Gen Z carries either the highest average student loan debt or the lowest. The average student loan debt for Gen Zers is $20,900, according to the Federal Reserve Bank in St. Louis, or $14,739, based on studentloanplanner.com’s analysis of federal student loan data.
Either way, most researchers agree people born between 1997 and 2012 could face the most financial difficulties from student loans going forward. Why? The cost of college continues to climb, people take out more student loans, and young Gen Zers may choose a post-secondary education.
If you’re 12 to 27 years old, now is the time to learn about student loans. This guide can help you navigate student loans and maybe prompt questions to ask a financial advisor like TABER Asset Management.
Understanding Student Loan Types
There are two types of student loans: federal and private. A federal loan is money you can borrow from the U.S. government to cover education expenses. A private loan is money borrowed from financial institutions like banks or credit unions.
Types of Federal Student Loans
Here are federal student loans you can take to help pay for your college education:
Direct Subsidized Loans: $5,500-$12,500 per year for undergraduate students with no credit check; interest paid by the government during and right after you’re in school
Direct Unsubsidized Loans: $5,500-$12,500 per year for undergraduate and up to $20,500 per year for graduate students with no credit check; interest accrues while you’re in college, but you can pay it after you graduate
Direct PLUS Loans: For graduate or professional school students or parents; carries a higher interest rate and requires a credit check
Direct Consolidation Loans: For federal student loans only and allows you to combine multiple loans into one lower payment and access loan forgiveness programs
You may want to attend college but need additional money to make it happen. If so, it’s recommended that you consider a federal student loan before a private one, although most federal student loans carry an origination fee.
Private Student Loans
You might seek a private student loan after exhausting options for federal student loans. You can choose an interest rate that is fixed or variable. Private loans require a credit check, and students often don’t have credit, so your parents may need to cosign on your loan.
Managing Your Student Loan
How you manage your student loan can affect your long-term financial future. Therefore, you must fully understand your loan. Calculate the total cost of your loan, know your interest rate, read and understand the terms of the loan, learn about your grace period, stick to your payment schedule, and consolidate your loans.
If you don’t have a budget, it’s time to create one. Calculate your total income and debt, and include your student loan. Your budget should include saving and investing—maybe open an individual retirement account (IRA). It may seem difficult on a tight budget, but even the smallest amount set aside now can pay off later.
Pay more than your minimum payment to lower the amount of interest you’ll have to pay, and if you have multiple loans, pay off the one with the highest interest rate first.
Meeting Repayment Challenges
Once you get through college, don’t ignore student loans. Make your monthly payments on time to positively impact your credit rating. Failure to do so can hurt your credit, making it difficult to rent an apartment, buy a home, or purchase a car.
You can choose from the government’s eight repayment plans, including four plans based on your income.
Consider consolidating your loans to lower your payments and allow access to programs to help you, such as the new Saving on a Valuable Education (SAVE) plan. It bases your payments on income and family size and forgives the remainder of your loan after a number of years.
If you’re heading to trouble or already there, you can seek forbearance on your federal loan to pause payments and get a lower payment. However, you end up paying longer—and more interest—on your loan.
Getting Help Before or After College
If you need help with financial planning or are considering a student loan, the financial advisors at TABER Asset Management can help you understand your options. Get started today by scheduling a 15-minute intro phone call online or reaching out to us at 515-557-1860 or invest@taberasset.com.
About Anastasia
Anastasia Taber, CFP®, is an Associate Advisor and leads the financial planning services division at TABER Asset Management, an independent, fiduciary wealth management firm that strives to do one thing well: manage their clients’ money by creating wealth, building wealth, growing income, and preserving capital so they can experience financial freedom. Anastasia is a CERTIFIED FINANCIAL PLANNER™ and has a Bachelor of Arts in English with a minor in Chinese from Georgetown University. She has years of experience working for one of the largest REITS in the U.S., as well as in property management and accounting at a global law firm in Washington, D.C. Anastasia is passionate about exceeding her clients’ expectations and building caring, long-term relationships based on trust. She is known for being detail-oriented and committed to excellence in her work. Anastasia is a co-host of the Creating Wealth podcast. To learn more about Anastasia, connect with her on LinkedIn.