Student debt will limit how much some Americans can save for retirement as monthly payments resume this week, according to a recent survey.
Three out of four borrowers surveyed by Corebridge Financial said that resuming student debt payments will impact their ability to save for retirement. More than one in five borrowers noted that they would have to reduce saving for emergencies, and 22% planned to cut back funds they put towards retirement.
To start repayments, 50% of respondents said they planned to immediately reduce spending on nonessentials such as entertainment, while 41% planned to find additional work or increase their working hours. Another 37% reduced spending on essentials such as groceries. For 38% of borrowers, the impact of resuming may be so severe that they expect to default on the loan, the survey said.
"Many Americans are likely to feel increased pressure on their personal budgets once student loan payments resume," Corebridge President of Retirement Services Terri Fiedler said in a statement.
Student loan repayments resumed on Oct. 1, and interest had already begun accruing on student loans as of Sept. 1, following the expiration of a three-year moratorium during which millions of borrowers believed they would have up to $10,000 in federal loans forgiven under President Joe Biden's debt relief plan. The U.S. Supreme Court ultimately blocked the plan in June. Student loans cover between 25% and 50% of college tuition costs, and over 50% of borrowers have debt between $10,000 and $60,000, according to Scholaroo.
If you're a private student loan borrower looking to reduce monthly payments, you could consider refinancing your private student loans for a lower rate. Visit Credible to speak with an expert and get your questions answered.
STUDENTS HEADED FOR COLLEGE WORRIED THEY DON'T HAVE THE MONEY TO PAY FOR IT, SURVEY SAYS
Roughly 13% of Generation X still have federal student loans with an average balance of approximately $40,000 outstanding, according to a recent analysis by the National Institute on Retirement Security (NIRS). These borrowers generally have lower net worths and are likelier to fall short of their retirement savings targets.
Although Gen Xers with student loan debt have higher annual incomes likely because they are college-educated, they tend to have lower net worths and are more likely to fall short of their retirement savings targets, at least partly due to student loan debt, the analysis said.
"Gen Xers are fast approaching retirement age, so it's troubling that some are still carrying student loan debt," NIRS research director Tyler Bond said. "The good news is that attending college has increased Gen Xers' earning power and access to workplace retirement plans. But every dollar they continue to spend on college loans is money that could have been invested in their retirement.
"Retirement is going to be a nightmare for too many Gen Xers, and those who continue to have the burden of debt could be saving more for this major challenge," Bond continued.
Borrowers with private student loans could find relief by refinancing to lower their monthly payments. An online tool like Credible can help you compare student loan refinancing rates before you apply to help find the best deal for you.
STUDENT LOAN REPAYMENT MAY FORCE SOME TO TAKE ON MORE DEBT: SURVEY
Social Security can be garnished if borrowers default on federal student loans when claiming benefits. The Social Security Administration (SSA) can take up to 15% of benefits to pay off student loans in default, according to the Legal Aid Society of Cleveland.
On average, delinquent borrowers are estimated to face about a $2,500 reduction in annual Social Security benefits, calculations from the Center for Retirement Research at Boston College based on 2019 data. That represents about 4% to 6% of household retirement income.
Those garnishments may soon be unlawful if legislation preventing the federal government from withholding Social Security benefits from debtors who fall behind in repaying student loans or other non-tax federal debts passes. The Protection of Social Security Benefits Restoration Act was introduced recently in the House by Reps. John Larson, D-Conn. and Raul Grijalva, D-Ariz.; and in the Senate by Sen. Ron Wyden, D-Oreg.
"Social Security is an earned benefit Americans have paid into their entire working lives, and garnishing these already-modest benefits to recover student loan debt hurts their ability to retire with dignity," Larson said in a statement.
If you're having trouble making payments on your private student loans, you won't benefit from federal relief. You could consider refinancing your loans for a lower interest rate to lower your monthly payments. Visit Credible to get your personalized rate in minutes.
HARDSHIP WITHDRAWALS FROM RETIREMENT ACCOUNTS INCREASED IN THE SECOND QUARTER: REPORT
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