Digging out of student debt

U.S. life expectancy continues to rise, according to U.N. projections. That’s the good news. But more retirement years on the horizon means a need for more robust retirement savings. And from inflationary pressures to increasingly burdensome student debt, there are added obstacles to saving.

In fact, the number of American workers feeling “very likely” to reach their retirement savings goals slipped from 47% to 37% from 2022 to 2023, per research from our 2023 401(k) Participant Study.

Many are also figuring out how to deal with student loan debt. More than half of the class of 2021 (54%) graduated with debt along with their bachelor’s degree, according to the most recent data from College Board. And the average U.S. household carrying student debt owes $59,461, according to a 2022 NerdWallet study.

There have been glimmers of hope for those looking for relief. Since 2007, federal student loan borrowers who made payments on their loans for 10 years while working in public service and meeting other requirements could take advantage of the Public Service Loan Forgiveness program.

More recently, Congress enacted federal student loan forbearance less than one month into the pandemic. And in 2022, the Biden administration launched a $400 billion plan to cancel or reduce federal student loan debt, though the Supreme Court blocked the effort in June 2023. The following month, the Department of Education announced it was canceling $39 billion in student debt for more than 800,000 borrowers. Yet that initiative has also faced legal challenges—leaving many borrowers in limbo.

A greater portion of their budgets will now need to be allocated toward resuming repayments on federal loans that had previously been paused. And that likely means many people won’t be able to put as much money toward their financial goals, like buying a home or saving for retirement.

With loan forgiveness in flux, borrowers should explore other paths, says Michela Allocca, creator of the financial education website Break Your Budget.

“There is a new student debt relief plan—it’s not forgiveness—called the SAVE [Saving on a Valuable Education] Plan that will help alleviate the burden on lower-income Americans,” she says. “Borrowers can enroll in an income-driven repayment plan; qualify for $0 monthly payments, depending on their income; and avoid paying interest beyond the monthly payment if they continue to make monthly payments. The plan is still new and subject to change. Benefits you qualify for depend on your income and situation.”

Additionally, some employers may offer tuition assistance or help with paying loans, Michela says. It’s a benefit worth investigating during a job search or with your HR department. 

Michela warns against holding out for a promise of student loan forgiveness, which she says is unlikely before the 2024 election cycle. “It’s expensive legislation that needs bipartisan support that we currently don’t have.”

Her tip? Borrowers should move forward under the premise that they’ll need to repay their loans. Then if things change, they can adjust accordingly.

Student loans have to be paid or forgiven, one way or another—but that shouldn’t get in the way of anyone with this kind of debt building a sound financial future.