Retirement savings when paying student loans

Would you save more for retirement or paying off student debt? Student loan balances have a significant impact on people of all ages, especially younger workers and those who have returned to school or progressed in the past decade.

About 70 percent of recent college graduates from four-year colleges had student loan debt, and the average graduate of the Class of 2016 ended up with $ 37,172.

Focusing on long-term goals such as retirement may seem like a distant priority. But if you wait a long time to start saving for retirement, you are likely to face greater challenges in your financial life that have been overshadowed by inspired student loans.

Here are some of the financial planning steps in the list of priorities that most often need to be completed before attacking student loans with additional payments.

Create a list of your most important financial life goals

Create a list of your most important financial life goals

There is no doubt that student loan debt creates a significant burden on many household budgets. These loans should not prevent the achievement of important life goals. While your budget or personal expenses plan may prove solid as you make these necessary payments, it is important that you have a written financial plan of action. Having a written plan can help provide guidance when trying to prioritize how to spend your time and money.

By taking the time to put your goals into writing and identifying the steps needed to achieve those goals, you can increase the likelihood that you will eventually reach those goals. A poll found that less than 40 percent of investors actually had a written plan.

Having a written financial plan is helpful no matter what your financial situation is at the time.

Your plan does not have to be too complicated and a simpler approach is often more effective. For example, One Page Financial Plan: A Simple Plan to Be Smart about Money Carl Richards emphasizes how you can accomplish remarkable things in your financial life with a basic plan. Unfortunately, many people see $ 1.3 trillion in total student loan debt in this country as an impossible mountain to climb.

On a personal level, you can assume that your student loan debt means that you will never be able to buy a home or gain financial independence. Instead of focusing solely on student loans, create a simple one-page financial plan to help you find the best way to pay for student loans in other areas of your financial life.

Create a Personal Cost Plan


It is important to keep track of your expenses. However, it is more important to go beyond tracking what has already happened in the past and creating a spending plan that tells your money where to go in advance. Despite the importance of the budget, only one in three Americans actually monitors budget revenues and expenses on a regular basis. Student loan repayments are typically 10 to 15 percent of discretionary income.

Your actual payment amount will depend on the repayment plan you choose.

The process of choosing the right repayment plan goes beyond focusing on current minimum payments. You also need to estimate how long it will take to clear your student loan debt and how the total interest expense over the life of your loan. Having a spending plan will pay off your budget and help you identify ways to save more for retirement and pay extra for debt.

You can learn more about how to choose the right federal student loan repayment plan at

Maintain a Starter Emergency Fund

A starter protection fund typically ranges from $ 1000 to $ 2000 in an account separate from your regular check. This fund is necessary to avoid expensive credit card debt or personal credit if an unexpected medical, auto or home expense occurs.

Pay off high-interest debt

Pay off high-interest debt

When it comes to repaying loans and other debt obligations, it is important to understand that some types of debt are more problematic than others. Lower interest student loans or mortgage debt are generally more acceptable and lower priority since interest can be deducted from taxes.

These payments should continue to fall below 25% of your total monthly income. For other more problematic types of debt (such as credit cards) with interest rates greater than 6 percent, eliminating the debt interest rate is the best way to prioritize them.

Determine Savings Fund Savings

Most Americans do not have enough savings to cover the cost of 1 month. However, it is generally recommended that you have enough savings to cover at least three to six months of basic living expenses. The best way to achieve this is to automatically transfer money directly from your paycheck to a separate savings account until you reach the savings goal.

63% of loans on Income Campaign hides high interest despite being advertised at 0% TIN

Most of them actually charge interest that can reach 25% APR

63% of loans designed to finance the payment of income tax or advance repayment are advertised with a Nominal Interest Rate (TIN) of 0%. However, the fees that all of them apply mean that the real interest that the consumer will have to pay will reach an Annual Equivalent Rate (APR) of up to 25%, according to an analysis prepared by Cream Credits.

The 2015 Income campaign began on April 6 and will last until June 30. Until then, taxpayers will submit a total of 19.7 million returns, of which 74% will obtain a negative result (with an average return of 740 dollars) and 21%, positive, which will require paying 1,866 dollars of half.

Face the payment of personal income tax or to dispose of the refund in advance

11 financial entities (22.5% of the total) have loans that finance this type of operations, although three of them did not want to provide detailed information.

“Of the eight banks that do provide information on their loans for the Income campaign, 63% of the total is sold at a rate of 0%. However, all of them apply commissions for carrying out this operation, at least, of 1%. This causes that, when calculating the real interest that the consumer will have to pay, this will trigger up to 25% APR, a figure that triples the average APR of consumer loans, ”explains the spokesperson for Personal Finance of Cream Credits, Steffany Gonzalo .

In general, the loans that make it possible to finance the IRPF payment charge an average interest of 2.18% TIN. However, most of them charge commissions (seven of the eight offers that have standardized information) and, in some cases, those commissions are subject to a minimum in dollars.

“With this scenario, a consumer who had to finance the average payment of 1,866 dollars for nine months that taxpayers with a positive declaration will have to make this year, would have to pay an APR of 6.78%, which means that they would end up reimbursing Bank 1,916.4 dollars -50.4 dollars more than the amount initially requested.

Of all these offers are commercialized with an interest of 0% TIN. However, all charge opening or management fees, ranging from 1% of Fine Bank’s product (with a minimum of 24 dollars) to 3% of Best Bank and Sanbuwan. The application of these added costs causes the real interest of these “interest-free” products to be between 3.16% APR and 7.61% APR.

With regard to loans to advance the return of personal income tax

These products charge an average interest of 2.04% TIN. However, many of them (six of the eight offers) apply commissions that, in several cases have a minimum in dollars. “In this context, a consumer who would like to advance the return of the Treasury (740 dollars on average) to nine months, would have to pay an APR of 9.41%. That is to say, it should pay the bank 766.52 dollars -26.52 dollars more than the amount that the Treasury will enter- ”, says Gonzalo.

Among all these proposals, there are five that are commercialized with an interest of 0% TIN. However, all of them charge an opening or management commission, a charge that ranges between 1% of Fine Bank and 3.5% of Fine. Taking into account these added expenses, the real interest of these products ranges between 4.98% APR and 25.3% APR.

Loans for the payment or advancement of personal income tax can be very useful products

Loans payment or advancement of personal income tax can be very useful products

It’s because, unlike most consumer loans, they can request very small amounts of money and with a maximum repayment term that, on average, is around 11 months. However, it is very important to correctly calculate the APR they charge because the fees they apply are, in some cases, very high and that can cause the real interest paid by the consumer to end up shooting.

Loan repayment type

When applying for the building loan, an important point is the determination of the repayment. Since the loans have a long term, it is very important to accurately determine the repayment. To do this, it is first necessary to know what types of repayment there are.

Criteria for repayment

Criteria for repayment

Before the method of repayment is determined, various criteria need to be taken into account. These are:

  • monthly income
  • Age
  • marital status
  • Higher loan interest rates and fixed interest periods


The decisive factor here is the monthly net income. It is usually the same for employees and civil servants. For workers, it depends on the number of hours worked. In order to get a meaningful basis, an average value should be formed. In general, the rule applies, the higher the income, the higher the repayment rate can be.


The repayment should be such that, for example, the loan has only a small remaining debt from the age of 65, or it should be repaid by then. Banks are very careful about age, there are often upper limits up to which loans can still be approved, for example that the loan must be repaid by the age of 70.

Marital status

The repayment should also take into account the current and possibly future marital status. The number of family members influences the freely available net income. Every household person incurs living expenses. Especially when children live in the household, it has to be taken into account that the needs increase with increasing age of the children. This aspect should be given sufficient consideration when setting the repayment rate.

Amount of loan interest and fixed interest period

The loan amount significantly affects the term of the loan with a fixed repayment amount. The higher the interest rate, the smaller the monthly repayment and vice versa. Especially in periods of high interest rates, many loans are hardly repaid. In contrast, the repayment is significantly higher in periods of low interest rates.

The fixed interest period provides a calculation basis for the repayment. The longer this period, the longer there is absolute interest rate certainty. The rule is that when interest rates are low, the fixed interest period should be as long as possible; if interest rates are high, however, it should be rather short.



An annuity indicates a constant rate. With an annuity loan, the repayment rate (annuity) is always the same, for example 500 dollars. As with any type of repayment, this always consists of two components. These are the interest payments and the repayment.

The special thing about annuity is that these two components develop differently over time. Interest is reduced with each repayment. The pro rata monthly interest is also reduced. Since the annuity always remains the same, the repayment portion increases in line with the fall in interest rates. As a rule, the repayment rate is between 1-3% at the beginning, then increases steadily over time.

The total term of the loan is largely influenced by the respective interest level. In periods of high interest rates, interest rates are well above 7 percent, the repayment portion increases only slightly, the term is therefore very long. Conversely, increases in low interest rates, interest rates are below 4 percent, the repayment share is stronger, the total term of the loan is therefore shorter.

Redeemable loan

Redeemable loan

Repayment loans differ from annuity loans in that the rate is not constant, but the repayment portion of the repayment rate is constant. This type of repayment has the advantage that the total term is already fixed when the loan is taken out. It is calculated by dividing the loan amount by the monthly repayment portion.

The total repayment rate also consists of the two components interest and repayment. Both parts are added. Since interest rates can change over time, the credit rate changes accordingly.

Borrowers against high risk, particularly in low interest rates. Interest rates are expected to rise in the future. Depending on how strong these increases are, the situation may arise that the rates can no longer be paid. It is therefore very important that interest rates should be fixed as long as possible in these phases. This has the advantage of planning security.

The situation is reversed in periods of high interest rates. In the future, credit rates are expected to fall here, as interest rates will continue to fall. In periods of constant interest rates, the credit rates remain almost unchanged.

Repayment loans are rather rare in practice. The reason for this is that credit rates can change permanently.

Total loans due

Total loans due

Loans that are fully due have a completely different repayment type. The total repayment is made on a predetermined date. The repayment amount often comes from contracts that fall due on this fixed date. The classic case is the maturity of life insurance. But building loan contracts or other savings contracts can also be used for repayment.

During the term up to the total repayment, the repayment rate consists only of the interest payments. These loans may make sense in certain constellations, but in comparison of the total interest payments they show a higher interest burden. This is due to the fact that no repayment takes place until the replacement date.