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The oldest members of Generation X are about to collect Social Security. The youngest members have reached their forties, perhaps loading their careers hard. Two different stages of life but with a common link: student debt.
Find out: Will student loans get more expensive when the Fed raises interest rates?
Read more: 10 ways to pay off your student loans in a year
The Pew Research Center defines Generation X as those born between 1965 and 1980, sandwiched between baby boomers and millennials. Members of Generation X, however, share an unfortunate distinction, that of having loan debt largest student of all demographic groups.
According to the research-driven Education Data Initiative, as of October 2021, Americans owed $1.57 trillion in federal student loans – with Gen X holding 38.4% of the debt. An analysis earlier in 2021 by the AARP Public Policy Institute showed Americans 50 and older had student loan debt of $336.1 billion, or 22% of the total.
“Student loan debt is becoming a burden on all generations, ensnaring more and more older adults and delaying or hampering the retirement plans of many,” said Gary Koenig, vice president of financial security. from AARP, in a March 2021 press release. “Paying for higher education was never meant to last a lifetime.”
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If you’re struggling with student debt and unable to meet your financial goals—creating a safety net, buying a home, saving for retirement—you’re not alone. But some Gen Xers who were once in your position devised plans to escape debt, and now have financial freedom, and are sharing how they did it.
“Attack the Goals”
John Schmoll decided to tackle the debt. He graduated from Kansas State University in 1997 and owes about $50,000 – half in student loans, the other half in credit cards. It took him six years to pay off his school debt, and he shares what he learned about financial freedom on his personal finance website Frugal Rules.
“The main strategy I used to kill student loans was to consolidate them, so I only had to make one payment instead of several each month. Beyond that, I was working on the side, looking for ways to save money, sold items I didn’t use, and more, and used all that money to pay off my debt,” he said.
“Debt held me back because I wasn’t able to make meaningful progress on other financial goals like saving for retirement and moving. It also meant I rarely had spare cash. spare to do anything.
What changed things for him?
“It was about budgeting and learning the folly of trying to fund things that I wanted but couldn’t afford,” he said. “My life has improved tremendously since I paid off the debt. As a family, we are able to tackle the goals we have and stay on a solid financial path. It has also helped us, my wife and I, to begin instilling sound financial principles in our young children.
See: Should you invest more money in a 401(k) or toward student loan debt?
Create an aggressive strategy
Katrina McGhee racked up $52,000 in student loan debt at Smith College. She and her parents split the balance, and it took her 10 years to pay off the debt while making standard minimum payments. Then she added $60,000 in trade school debt, even with a full scholarship.
“While I initially stuck to the standard payment of $700 per month after graduating and starting my MBA career as a market researcher, I quickly realized that the interest rates and amount of debt would mean paying tons of money in interest over a very long period of time. So I started putting [approximately] 75% of my annual premiums towards my student loans. I chose to start with the loans that had the highest interest rates first.
“I made a lot of progress in just two years of payments. I was under $50,000. However, it was around this time that I started another important goal which competed with paying back my student loans…I wanted to save $40,000 as soon as possible to take a career break/gap year and travel the world.
It was at the age of 32.
Find: 8 work-from-home businesses that will help you pay off your student loans
While continuing to repay her loan, she said she saved $40,000 in 18 months and then placed her loans in forbearance and deferment programs. When she returned from her absence, she had approximately $42,000 left to repay. She was determined to pay him back as quickly as possible, and it took 21 months.
“This time I paid extra principal on each loan payment and put [approximately] 75% of my bonuses towards reimbursement. One strategy that was incredibly helpful to me at that time was to use the $30,000 line of credit on my HELOC to absorb the last $30,000 of my student loans. This way my interest payments were lower (about 3.5% vs. 7%) and my interest payments were tax deductible, which was not the case with student loan payments due to my tax bracket. So, in the end, it helped me pay off my last $30,000 much faster.
McGhee now works as a career break and sabbatical coach who helps others prepare for what she calls a “life-changing break.”
See: 4 of the Best Student Loan Refinance Companies
Schmoll and McGhee show what determination and dedication can do when it comes to paying off student loans. Other keys are to limit overall what you owe and not take on additional debt so that every spare penny can be directed towards student loans.
Once you clear those balances, think about the financial freedom that awaits you.
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