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The oldest members of Generation X are inching toward collecting Social Security. The youngest members have moved into their 40s, perhaps charging hard in their careers. Two different stages of life but with one common link: student loan debt.
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Pew Research Center defines Generation Xers as those born between 1965 and 1980, sandwiched between baby boomers and millennials. Members of Gen X share an unfortunate distinction, however, of carrying the most student loan debt of any demographic.
According to the research-focused Education Data Initiative, as of October 2021, Americans owed $ 1.57 trillion in federal student loans – with Generation X holding 38.4% of the debt. An analysis earlier in 2021 by the AARP Public Policy Institute showed that Americans 50 and older had student loan debts of $ 336.1 billion, or 22% of the total.
“Student loan debt is becoming a burden for all generations, ensnaring more older adults and delaying or battering the retirement plans for many,” said Gary Koenig, AARP’s vice president of financial security, in a March 2021 news release. “Paying for higher education was never meant to last a lifetime.”
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If you’re struggling under the weight of student debt and unable to fulfill financial goals – creating a safety net, buying a house, saving for retirement – you aren’t alone. But some Gen Xers who once were 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 attack the debt. He graduated from Kansas State University in 1997 owing about $ 50,000 – half from student loans, half on credit cards. It took him six years to pay off his school debt, and he shares what he learned about reaching financial freedom on his personal finance website Frugal Rules.
“The main strategy I used to kill the student loans was to consolidate it so I only had one payment to make instead of multiple ones each month. Beyond that, I would work side jobs, looked for ways to save money, sold items I did not use, and more, and used all of that money to throw at my debt, ”he said.
“The debt held me back because I was unable to make any significant progress on other financial goals like saving for retirement and moving. It also resulted in me rarely having any spare money to do anything with. ”
What turned things around for him?
“It was getting on a budget and learning the foolishness of trying to finance things that I wanted but could not afford,” he said. “My life has improved immensely since paying off the debt. We as a family are able to attack the goals that we have and stay on a solid financial path. It has also helped my wife and I to begin to instill solid financial principles into our young children. ”
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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 as she made standard minimum payments. Then, she added $ 60,000 in debt from business school, even with a full-tuition fellowship.
“While I originally stuck to the standard $ 700 per month payment upon graduating and starting my MBA career as a market researcher, I quickly realized the interest rates and amount of debt would mean paying tons of money in interest over a very long time. So I started putting [approximately] 75% of my annual bonuses toward 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 down to less than $ 50,000. However, it was during this time that I began another big money goal that competed with paying off my student loans… I wanted to save $ 40,000 as fast as possible to take a career break / gap year and travel around the world. ”
This was at the age of 32.
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While still making her loan payments, she said she saved $ 40,000 in 18 months, then put her loans into forbearance and deferment programs. When she returned from her time away, she had about $ 42,000 left to pay off. She was determined to pay it off as fast as she could, and it took 21 months.
“This time I paid extra principal on every loan payment and put [approximately] 75% of my bonuses toward paying this down. One strategy that was incredibly helpful to me at this time, was using 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 they were not as student loan payments because of my tax bracket. So, in the end, this helped me pay off my last $ 30,000 much faster. ”
McGhee now works as a career break and sabbatical coach who helps other people prepare for what she calls a “life-changing break.”
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Schmoll and McGhee show what determination and dedication can do when it comes to paying off student loans. Other keys include keeping what you owe overall limited and not taking on any additional debt so that every spare penny can go toward student loans.
Once you’ve wiped those balances clean, think of the financial freedom that awaits.
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