1. Debts and its impact on retirement

2. What is retirement..?
Retirement is a point where a person stops employment.
Retirement generally coincides with the employee's eligibility to collect retirement resources such as Social Security, a company pension, or distributions from a 401(k) or another retirement plan.

3. Debts… The debt is the money that we owe.
As we all know, every individual will owe in some or the other way in his life time according to their needs and financial situations.
Though debt looks like a small part, but this is the one which weakens his/her savings at the end.

4. Different kinds of debts are…
Student debts
Housing debts
Personal debts
Debts are the drawback for savings which totally effects and declines their retirement savings.

5. Reasons for this situation are..
Lack of proper planning.
Borrowing the debt more than what they can afford.
Making high investments(Risking all their money and expecting high or even double amount for their investments) which makes their financial position critical.
Negligence (for example, when we borrow some amount, at that point it looks really small for us but when we start paying it back, then we come to know what amount we have borrowed and we realize how is it affecting our retirement savings)

6. Observing how student loans effect retirement
Student loan is the amount borrowed by an individual for an financial support to complete his/her education with out any financial break.
A student loan is designed to help students pay for university tuition, books, and living expenses.
Students will be asked pay back the loan with some rate of interest after they complete their studies and get into the job.

7. Combining both student loan and retirement…
According to my knowledge, i have made student life cycle till he/she reaches his retirement and how his/her student loan is affecting their retirement life.
In this case, I have assumed students age group in between from middle class family as their background.
As we know majority of people are from middle class family itself.

8. Assuming a student took loan for his/her under graduation or Graduation and his age at that time would be in between [25-30].
Average loan taken is in between {50000$ $}, and student got job and started paying back the debt from the age of 30.
Time period for repaying is 20 years, where he/she reaches nearly to age of [45-50].

9. In between these 20 years there are many other consequences which are additional investments such as
Buying home
Large investments (stocks and buying huge properties)
Marital status
Children
Un expected expenditures(i.e. Health issues)
Unfortunately, most of the people are under pressure paying their debts, as the expenses are also increased

10. By the time they try to clear all these debts, there children are reaching to their high school or under graduation.
Where again they are also in need of the student loans.
Therefore he/she are forced to withdraw their RETIREMENT savings to clear off all these debts and provide good future for their children life.
Thus the student life cycle.

11. Observing student loan debt
Source: Federal Reserve Bank of NY

12. Federal student loan debt
Reached $1 Trillion milestone on May 8, 2012.
$1,000,000,000,000
About $878 Billion in Federal family educational loans (FFEL) loans
About $292 Billion in Direct loans
Average borrower has about $27k in Federal Debt (4-year graduate); $300 per month/120 months (10 years)
Total outstanding Private Student Loan Debt (2009) was approximately $157.8 Billion (this is in addition to Federal debt)
The count continues more…

13. Obtaining a student loan
Have they made student borrowing too easy?
Do students understand and actively confirm what they are borrowing?
Do students sign their own documents?
Do graduates know how much they have borrowed for 2, 4, 6 years – or even longer?
What barriers do you have in place to prevent maximum borrowing? Any?

14. Debt Picture Number of student loan borrowers in the US: 37 million
Percentage of borrowers who owe less than $10000: 20%
Average starting salary for 2012 college graduates: $44,482
Unemployment rate for college graduates: 24.6%
Percentage of 2010 college graduates working jobs that require less than a high school diploma: 38%

15. Debt picture National average default rate on student loans: 13.4%
Student borrowers under the age of 30: 14 million
Number of Americans age 60 or older who owe money on student loans: 2.2 million

16. Rising costs
Source: Coursesmart.com

17. From the Gallup student poll: Do you (as a student) have a plan?
Source: Coursesmart.com

18. The debt looks like…

19. Causes of Increase in debt and its Impact
The increase in outstanding student loan debt over the past decade can be attributed to a combination of several factors.
On the demand side, the first is an increase in college enrollment, which rose by 27 percent from 2002 to 2011.
The second is an increase in college costs, though this is not as obvious as it might seem. From 2002 to 2012, inflation-adjusted.
college costs—defined as the sum of room, board and “net tuition” (tuition costs after subtracting federal, state, and private [non-loan] aid, as well as any discounts offered by the institution)—rose by 41 percent within private four-year institutions, by 9 percent for public four-year institutions, and actually fell 7 percent for two-year public institutions.

20. Accounting for the number of students at each type of institution, average college costs rose by about 16 percent.
It is unclear how much of the increase in the cost of attending college is due to changes in public support for higher education and how much due to rising costs of providing higher education.
Student loan debt can influence career choice and post graduation employment decisions
Once students graduate, student debt can impact career choice and willingness to seek a graduate education. Lastly, student loan burdens can also affect financial decisions later in life, influencing decisions about home purchase and marriage.

21. An immediate impact of student loan debt can be seen in the performance of students while still enrolled in higher education .
show that student debt has a significant impact on choice of major, pushing some students toward jobs with higher expected wages
— such as those in engineering and economics. Students also widely report that the presence of student debt affects their studies.
For example, its shown that 40 percent of students with student loan debt reported that they did not return to school or transferred to a lower cost school due to student loan

22. Sequestration cuts institutional aid (SEOG by $37M, Federal Work Study by $49M)
Increased loan borrowing fees
From 10% to 25% for Direct Stafford
Increased Interest Rates
Subsidized loans from 3.4% to 3.86% on July 1, 2013
Subsidy during 6-month grace period was removed last year
No interest subsidy for Graduate Students as of last year
Students can only borrow subsidized loans up to 50% of program length (if they would qualify)

23. Trends changing in student loans
Undeclared majors
Changing majors
5 or 6-year plan
Working the system
Buy Now, Pay Later mentality

24. According to a recent survey released by the Credit Union National Association (CUNA), nearly half of those 17 and 18 year olds surveyed can’t predict how much college will cost them.
The survey also said, “A lack of knowledge of student loan terms is compounded by optimism. Seventy percent of students surveyed feel confident they’ll land a high-paying job after graduation.”

25. Impact on housing and the broader economy.
Deferred loans represent 43.5% of all student loan balances. (no payments are being made on them at all – interest is still accruing)
– Transunion study
Impact on housing and the broader economy.
Grads return home to live with parents
Jobless or Underpaid
Home ownership rates among young people at lowest point in decades
Heavy student loan debt may hurt their ability to qualify for a mortgage or save for a down payment.

26. Student loans by age: 62% of workers will not have resources to retire
May be unable to save for retirement or rely on their parents, who are nearing retirement, to pay their debt.
Rural areas are struggling to attract and retain young professionals
Students cannot afford the housing or the required expenses.
Student loans by age:

27. Conclusion
If we plan properly while borrowing the debts, everyone can become financially strong without moving their retirement savings from 401 k or IRA.
We all should know retirement saving is not the chance, it totally depends on the choice of plans that we follow.
Changing according to the time.
Everyone should understand the importance of saving, and its role at retirement time.

28. Each and every individual should think saving is an asset which pays us a monthly wage even after we retire for job.
Debts should be taken care from the starting point itself.
Therefore managing all our debts accordingly creates healthy financial position as well as it makes our retirement savings stronger.

29. Thank you.
Presented by,
Rohith Nambi.