How to Navigate Student Loans when You’re Gen Z

For young adults, student loans can be an immense hurdle on the path to financial stability and independence. We recently talked to some students about their questions regarding student loans, including strategies to avoid them and how to best pay them off.

Edelman Financial Engines advisors Kay Russell and Kelli Smith are here to answer these questions and to talk Gen Z through managing their student loans.

CHOOSING YOUR SCHOOL

Tuition is an important factor to consider when deciding which college or university you’ll be attending. While some of the more expensive universities may have fancier buildings or better networking opportunities, graduating debt-free is a perk in and of itself.

Students and their families should weigh their options when choosing the right school for their financial situation, including the pros and cons of each.

“We have three going to college simultaneously, and we've opted for our kids to go to community college for two years and then transfer to a state college,” Kay said. “And we will help them through those four years. Our kids going to a community college for two years, that was a financially defensive move. It’s a lot cheaper to go that way, but you don't get the whole college experience. To some degree, college is more than just an academic education, it's also social. You find different people that you’re able to network or collaborate with, and you might have less opportunity to find these people at a community college. But, that's the decision my family made in order to cut costs because of our number of children.”

CHOOSING YOUR MAJOR

It’s no secret that different majors promise different financial outcomes for students. While following your dreams can be incredibly fulfilling, if your dream career doesn’t promise a lucrative wage, it may be best to avoid going into extensive student debt to achieve your desired degree.

“You choose to go in debt to go to school, just like you go in debt to buy a car or anything else,” says Kelli. “You’ve got to pay your debt back, which means you have to go after degrees that have some sort of return on them. We can't get a degree in historical literature without a solid career plan – and if you’re planning to be a professor or a teacher, the salary expectations need to be managed.”  

So, go for your dream career but do so with your eyes wide open and expectations aligned.

CONSOLIDATING YOUR STUDENT LOANS

If you’ve already incurred some student loan debt, there are ways to make it more manageable. If you took out multiple loans from different organizations, Kelli recommends consolidating them using a debt-consolidation loan. With a debt-consolidation loan, you’ll get money from a lender to pay off multiple debts at once and then repay the lender in monthly payments. However, getting approved for these loans can be difficult if you don’t have enough income or have too much credit card debt. Getting a parent or another individual with a better credit score to co-sign on your debt consolidation loan can help you get approved. Just be sure you’re all aligned on the expectations and timeline for paying everything off.

PROGRESS YOUR CAREER

Of course, climbing the career ladder and increasing your income will help you pay off debt quicker. For students who graduate with student loan debt, focusing on your job performance, being promoted and getting raises can help pay off that debt faster.

“If you're going to incur a lot of debt, you need to be climbing that ladder. You don't get to have a degree from Duke and then be a regular Joe at the corporate office. It's not going to work financially. So, if you want the pedigree, you've got to work to earn it and to financially support it, because that's the only thing that's going to pay off that debt. If you go to an expensive school, start paying it off with any money you can spare. Then, carefully manage your spending, prioritize paying off your debt, and work your tail off to get it done,” Kelli says.

Higher education is a worthwhile investment, but it only pays off if you can afford to meet the financial obligation while pursuing your career goals. Make the right choice for you – academically and financially – and be diligent about managing your debt effectively, and you’ll be well on your way.