Failure to launch? 'The age of economic independence' is 32 now, up from 26, says chief economist: Here's why

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Key Points
  • Researchers at Georgetown University's Center on Education and the Workforce estimate that "the age of economic independence has been pushed from 26 to about 32 years old," in part because of student loans.
  • The moratorium on repaying federally-backed student loans expires May 1, ending a more-than-two year pause on penalties and interest for borrowers.
  • 39% of borrowers say the moratorium improved their quality of life, while 55% say their quality of life remained the same, and 4% say it worsened.

College debt in the U.S. is now more than $1.7 billion in the third quarter of 2021, according to the Federal Reserve. And it's keeping a lot of people from achieving their full potential, says Nicole Smith, a professor at Georgetown University and chief economist at the school's Center on Education and the Workforce.

The idea of delayed adulthood — putting off marriage, homebuying, and other milestones — became commonplace after the Great Recession. In the era of Covid, it's getting pushed back yet again, Smith says.

"The age of economic independence has been pushed from 26 to about 32 years old in our calculations," she says, and "there are consequences to exactly when you can launch your career and when you can launch into adulthood."

Student loan borrowers are more likely to carry other kinds of debt

When the student loan repayment pause expires on May 1, many borrowers will not have had to think about their federally backed student loans for more than two years. That breathing room has made a big difference to a lot of people, according to the results of the recent CNBC + Acorns Invest In You survey: Nearly 2 in 5, 39%, of respondents said the pause on student loans improved their lives.

Nearly half, 48%, of people who've stopped paying their loans during the pause used that money to pay everyday expenses, the survey found. That number was even higher for women and millennials, of whom 51% and 58% used the money for essentials, respectively.

Student loan borrowers are also considerably more likely than people without student loans to carry other kinds of debt on top of their college bills, according to the survey.

They are 1.5 times more likely to have credit card debt and more than twice as likely to have medical debt than people without student loans.

The average monthly student loan payment is about $450 for people with undergraduate degrees and about $700 for people with master's degrees, according to the most recent report by the non-profit Education Data Initiative, and working those amounts back into monthly budgets may not be easy for a lot of borrowers.

These last few months of reprieve are an ideal time to assess your overall debt repayment plan, experts say.

"They are now going from not paying [student loans] to having to pay. So you've got to flip the switch. You've got to be in the ready position," says Janet Stanzak, a certified financial planner and founder of Financial Empowerment in Minnesota.

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Use the end of the moratorium to get a handle on your debts

The student loan moratorium served as a necessary pause for many borrowers, but it's important to note that any payments one can make toward a student loan before May 1 will go directly toward lowering the principal.

However, experts say there are plenty of other goals you might want to consider first, though, including paying down other kinds of short-term debt and padding your emergency fund.

Making a plan to dedicate funds to your retirement accounts, for example, may have better longer term yields than putting all that cash to the remaining principal of your loan, experts say.

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Using that money to pay down other types of high-interest debt, like credit card balances, might also serve you better in the long term, so you have fewer bills to juggle when payments resume.

Start dedicating part of your budget to account for those upcoming payments, and put that money into savings or toward other higher-rate debt. Creating a new savings account dedicated just for that can be smart, Stanzak says, especially if you set up an automatic deduction from each paycheck. Then the money "just swoops from your paycheck into your student loan account."

If you still aren't on firm financial footing, experts suggest you ask your servicer about all your options.

You might qualify for lower monthly payments based on your discretionary income or an unemployment deferment for up to 36 months. Both options, however, will extend the life of the loan.

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