Sunday, February 7, 2016

Student Loan Debtors Wanting The Impossible: Saving For Their Retirement While Saving For Their Children's College

Student loan debt and retirement, or should I say owing student loan debt and saving for retirement, aren't really two things that go together, do they? Not that I have to tell any of my readers this obvious and well-known issue: but honestly, if you are burdened with student loan debt payments every month, how is it even possible to save for retirement? Perhaps some of you are, and if so, you could provide us with tips on how you're doing it.

But let's throw a family into the mix. Let's say you're raising a family, perhaps 2 kids. How are you saving for retirement while raising your family? Furthermore, how are you saving for them to go to college?

I think it's safe to assume that a good chunk of those 43 million Americans who are carrying the burden of $1.3 trillion in student loan debt are struggling to put anything away for retirement, or help their kids save for college.

I was reminded of the retirement problem when reading a recent article published by Forbes. It wasn't really news to me.

There is the interesting twist related to the load of student loan debt about trying to save for your kids, too. That is, how it is most likely a serious struggle for many parents with student loan debt to save for retirement while paying their loans off and raising a family. It reminded me of a recent conversation I had with a young woman who has children. She's a professional, as is her husband - so they are the types who are luckier than many student loan debtors, i.e., they have income to raise a family, service their student loan debt, and - I presume - lead a relatively comfortable life. They are one of the few who are still part of the middle class in the US. But she expressed concerns about saving for her children and their college. We didn't even touch upon the issue of retirement.

She remarked, "I mean, how do I possibly save for my children when my husband and I are still paying off our own student loan debts?" The question illustrates how the crisis is multi-generational.

So, people with student loan debt can't save for retirement. How's that going to work out for expenditures in the future? On top of that, these people who are younger and raising families can't put money away for their own children.

Both problems reveal the complex dimensional aspects of the student loan debt crisis and how young kids who have parents with student loan debt, but who themselves at this point have no debt, are pretty much doomed to take it on. That grim future for these future generations, however, doesn't have to be inevitable. And if we are smart about it, we can also impelement policies for current debtors, with or without kids, to help them prepare financially for retirement.

There are two things that need to be done - helping prospective college students and current debtors - both of which I outline in detail in my forthcoming book (pub date May 2016). 


Anonymous said...

Ah this is one thing I am not worried about.

For me to worry about paying for children's higher education, I'd first have to get married and have kids of my own.

Although frankly, the way it's going now, I suspect higher education will collapse within 20 years anyway.

Cryn Johannsen said...

@4:31 PM - in what ways do you see it collapsing? Do you think people will stop going to college here?

Anonymous said...

I am not the previous Anon.

But many moons ago on another blog, that high student debt will scar and impair the economy in many ways other than just student debt: marriage and families will be delayed, autos and homes not purchased or delayed, vacations skipped, all these elements will be dramatically reduced.

This effect is not limited to law students, but all students burdened with huge tuition debt. These kids are graduating with more debt than many lawyers 10 or 15 years out of law school could afford.

How WILL these kids, after paying on tuition debt for a couple of decades BOTH marry, start families, buy a home, AND save for retirement? So far, in history, human life has been finite, and as long as that remains true, there is not life enough to earn enough to cover all these things.

Not to mention that the medical expenses and nursing home expenses are lying in wait toward the end of the road to absorb whatever few dollars you still possess when you reach old age.

Tuition debt is the albatross of your pre-working life, health insurance, incredible medical bills, saving for your children's education, and retirement saving are the albatross of your working life, and nursing home bills are the albatross of your post working life.

Medical insurance and medical bills are my highest expense. I am healthy. Haven't been able to save for retirement the last 3 years. Three more to go to retirement. Well, quitting.

For those recent grads and future grads-note: Your parents had to sign for many of your tuition loans because lenders would not extend credit to YOU. Your kids are unlikely to be able to obtain loans if you don't sign for them, but after your student loan repayments drain you, your credit may not recover by time your kids are applying for loans.

Oh, and for all you wannabe solos: When you earn $100,000 as a solo, you are equated with an employee of a Fortune 500 company who also earns $100,000. Fair enough, except YOU pay your health insurance, life insurance, dental and optical bills (likely you will not have any insurance) and your retirement contributions, (taking your $100,000 down to $50,000, maybe). Your Fortune 500 counterpart receives all those items as benefits, but they are not counted for student loan purposes, so you "look like" a $100,000 income earner (who is really earning about $140,000 with all the benefits taken into account). You at $50,000 and your counterpart at $140,000 are treated equally for student loan purposes.

"You can't win, can't break even, and can't get out of the game."

I agree with the other Anon as the tuition debt load is rapidly approaching levels that can no longer be borne.

There is a reason car loan terms are "naturally limited." Cars only last so long. Imagine having a 10 year loan on an 8 year car. Were will you be financially, in 8 years looking for a new car (and loan)? Well, with 2 years on the first loan remaining. Who will lend to you?

Consider the position of debt overwhelmed graduate. In general terms, only tuition debt is not dischargeable in bankruptcy. So, imagine the reaction of hospitals, doctors, auto and mortgage lenders when they realize that the schools beat them to the punch by position tuition debt as non-dischargeable. They will either want such treatment too, or to end the educational lender's preferential protections.

I am 3 years from quitting work, and have the highest level of debt EVER. NONE of it is for anything I have purchased (well, one car loan but it was 0% interest, so why not?). Other than that, ALL of my debt is student loan debt. Now, granted the kids are to pay it back, but it is still carried as a long term liability on MY financial statements. I will likely die indebted for student loan debt.

[Just had a thought-amend revocable living trust so all life insurance proceeds payable to it are NEVER to be used to pay student loan debt, just to support spouse.]

Enough food for thought.

Anonymous said...

How to save for kids to go to college?

Easy. Tell your kids to join the military after high school. After four years, they can attend the state flagship for free.

Any takers? I'm guessing that whole "work for four years" thing would be a huge dealbreaker for many.

Anonymous said...

This is really how the student loan crisis will contribute to the shrinking of the middle class. The primary effect will be delayed. Simply, parents who are ostensibly middle class based on their work and salary cannot pass along money to their children - because there's no money to pass along.

I'm not talking about rich folks making huge transfers to their kids. I'm talking about the little things that middle class parents have done in the past to help their kids out and give them a better shot at attaining middle class status themselves - (1) helping out with (even if not paying completely for) school or job training, (2) helping out with a down payment on a house or car, (3) random money for emergencies (for example, kid's hours were cut at part-time job and can't make rent or phone or utility payment that month); (4) money to get kid out of a bind and teach a lesson about personal finance (for example, kid gets one of those starter credit cards with a $500 limit, maxes it out and can't pay).

These are just a few of many examples. And, I know they don't apply to all parents (e.g., some parents would help out with a down payment but wouldn't bail their kids out from financial mismanagement). Maybe they're not great examples, but you can see what I'm getting at. Parents make money transfers that "keep the ship a afloat" and enable their kids to keep moving forward.

This ability is going to be decimated for the people beholden to massive student loans and it affect the next generation because the children will have to make out more money on their own and start out life with more debt because of it. Generational poverty of a different sort.

Cryn Johannsen said...

@Anonymous 7:31 AM.

First, it isn't "easy." Why? Well, so you are aware, it has become more difficult for people to join the military ( And that shouldn't be the ONLY option for people who wish to go to school, or to help young parents with their kids who are going off to college. Now, if we funded something like that WPA did which included volunteer work to then send students to college for free, I would agree with that. It could include military service or other types of service, including service work at home, something which we desperately need.

I am not clear on your last remark about "work for 4 years." If you are implying that students don't work while in college, that is entirely false. A recent Georgetown study found that 70% of college students have worked while attending college ( This isn't always such a good thing either. Unfortunately, students who have to juggle studies as well as work oftentimes have to dropout - this is due to financial constraints and their need to cover the cost of living and so forth.

Also, and this is a final remark about working to pay for college, that is pretty much impossible. Fact: the cost of tuition has increased 1100% since the 1970s. So, yeah, you can't just "work" to pay for your college degree like people did several decades ago when tuition was still within reach.

Anonymous said...

Anon from 10:58 PM, here.

I think the "work for 4 years" is a reference to the terribly hard and long hours those in the military put in day after day. They do, and many kids today are not physically fit enough to meet the military's physical fitness requirements.

10:14 AM added a number of middle class practices which I have seen time and again in preparing Wills. "I want to give $20,000 to 3 or my 4 kids off the top, as I gave the 4th that much to bail him/her out...." (Or for school tuition, etc.)

Another wicked note: I now advise older clients to consider current Medicaid rules. Any transfer of assets (e.g.: making a $10,000 tuition payment for a grandchild) is an "unallowable transfer" and would cause a penalty period were that older client to apply for Medicaid in the 60 months following the gift. If the average nursing home monthly cost is $5,000, that older client would see their Medicaid benefits be delayed by 2 months due to that gift unless the grandchild paid it back. (Little chance of that.)

So, the only older client who can safely make such a gift has sufficient funds on hand, or available to pay for 60 months of nursing home to get past the 60 month "look back" period. They need $300,000 to cover that 60 months.

This reality is another aspect of modern life which chills grandparents interest in assisting grandchildren.