As a federal employee in the middle of his or her career, you likely feel your financial resources being pulled in a variety of directions – for example toward children, marriage, and home ownership. In addition to these priorities, student debt, whether lingering from undergraduate studies or a return to school later in life, may also be part of this mix.
If so, you may be wondering how student debt should realistically be prioritized among the many financial responsibilities that you’re facing at this stage of life and career. It’s certainly different at this stage than for early career feds, but it’s just as important of a task.
With that in mind, here are a few key considerations:
Keep Prioritizing Your Retirement
Once basic living expenses are met and minimum loan payments are made, I generally recommend that my clients prioritize retirement savings. Specifically, federal employees in their mid-career still need to ensure that they are contributing to their TSP (ideally at least up to the maximum match of 5%) and have an established emergency fund comprised of at least 3-6 months’ worth of expenses.
Additionally, life insurance is usually warranted by now to protect a family. While FEGLI is a great place to start, there are several reasons to consider supplementing your insurance needs with outside options to right-size your family’s coverage, and while I advise including mitigating the risk of the high cost of long-term care among retirement priorities, this planning generally doesn’t come into play until you’re in your 50s.
Evaluate Your Financial Goals and Responsibilities
It goes without saying that all debts, including student debt, need to be evaluated in the context of your full financial picture and future financial goals. For instance, if you’re considering buying a new home, remember that any debt tied to your name will be a factor when banks determine a loan amount. Loan maximums are generally reviewed against both your potential house payment and your total debt in relation to your gross income. Obviously, any student debt will play a factor here. Given the importance of credit history in this process, paying student debts in full and on time is paramount.
For this and other reasons, I rarely advocate for student debt deferral unless your situation truly warrants it. Keep in mind that interest is usually not deferred, so if you are able to stay on top of your current payments that is usually the best course of action. Also, remember that you can deduct up to $2,500 of student loan interest per year on your taxes (see your tax advisor for details).
Often in my dealings with federal employees, I’m asked if it’s wise for a spouse to contribute to your student loan payments in order to pay them down faster. While paying off high-interest debt is indeed almost always advised, you should proceed with caution. Marriage and money can yield numerous unpredictable emotions, so it’s important to navigate these conversations delicately to make sure this strategy is the best fit for your situation.
Consider the Cost-Benefit Value
Education, like any other tool, should provide an added value to you – it’s worthwhile, then, to always ask yourself if the potential benefits are worth the substantial investment of both time and money. If the answer is yes, the key to juggling this debt is determining the right priorities in the right order. Midway through your career, those are likely to be vastly different than when you first entered the workforce (or when you prepare to leave it) so treat these payments as one element of an entire financial landscape unique to your current situation.
If you’re considering a return to school later in your career, keep in mind that your federal agency may reimburse you for many forms of education. Be sure to investigate not only if you would qualify, but also what the obligations are for this reimbursement, as it may require a commitment to the agency for a set number of years.
Finally, keep in mind that working with a financial advisor with federal benefits expertise can be a great way to help you prioritize and maximize your finances – and rationally tackle your debts – during this exciting stage of your career.
Securities are offered through Cape Securities, Inc. Member FINRA, SIPC & MSRB. Investment Advisory Services are offered through Cape Investment Advisory, Inc. Both entities are not affiliated with GEBA. GEBA Financial Advisors are Registered Representatives of Cape Securities, Inc. The information contained in this article is derived from sources deemed to be reliable, but its accuracy cannot be guaranteed, and is subject to change. No commentary within this article reflects a specific recommendation and should not be considered a solicitation for any securities transaction.
