In the past few days, Lee Siegel has been called everything from dangerous to repugnant for his recent op-ed that advocates for defaulting on student loan debt.
The article, which, it must be said, has a very click-bait title for the New York Times, is called “Why I Defaulted on My Student Loans” and has inspired numerous Letters to the Editor, lengthy rebuttals and angry articles from all sides of the media.
My two cents? Let’s just be happy that this ran in the opinion section, because let’s be clear: no financial analyst would ever recommend defaulting on student loans. Ever.
Suffice to say, while this approach to student loans fortuitously worked out for Siegel thanks to his specific lifestyle, ambitions and lackadaisical attitude towards his credit score, it is certainly not a path to financial independence.
But, there is one nugget of truth that can be gleaned from his op-ed: don’t let your student loans get in the way of planning... for retirement.
"A lot of millennials think that saving is a linear process and that they have to pay down all their debt before they even begin thinking about savings or savings for retirement. I did the same thing," says Kristen Robinson, Senior Vice President, Women and Young Investors for Personal Investing at Fidelity Investments. "I was laser focused on paying my bills so that I would have no debt and then I thought I would start saving."
Robinson continues, "We have a point of view here at Fidelity that I wish I had when I was younger that you really can do both at the same time, but you just need to be smart about it."
As strange as it might be to save while still having debt, the experts unanimously agree on this idea, for two reasons. One, it starts the habit of thinking about retirement, which as we all know, is half the battle.
Secondly, as a twenty-something college graduate, time is on your side. Contributing even a small percentage of your paycheck to retirement account will add up by the time you are sixty or seventy.
"Get your foot in the door. Your ally is time," says JJ Montanaro, a certified financial planner at USAA. "Can you commit to doing 1 percent into your employer plan? That is a pretty low hurdle to make it over. You can do that."
When balancing loans and investments, it is also important to investigate your personal situation. Is your employer offering a percentage match to a retirement account? Do you have any high-interest rate loans? The answers to these questions should influence your approach.
"Obviously, you are going to have to pay down some amount of your student loans," says Luke Delorme, Research Fellow at the American Institute for Economic Research.
Sharing an example of how he and his wife both approached student loans differently, Delorme goes on to say that, "I don't have a specific answer as to whether you should pay down student loan debt or whether you should save in a 401k or in an IRA because I think it is a bit of a personal preference. Ultimately, that is what finance is about. Being comfortable with the decisions you make."
Luke, a self-described "finance guy" choose to put most of his money into a retirement account, while paying as little as possible on his student loans. His wife, who hated the idea of having any debt, prioritized paying off her student loans while contributing minimally to her retirement investment account.
"Both strategies actually worked out pretty well. The key is just making it happen," says Delorme.
Looking at both approaches, there are three key lessons from Delorme and his wife.
Both millennials had a plan. They didn't ignore their debt and they started thinking about retirement from day one. Hitting the ground running is key.
After coming up with a plan that felt right, each spouse understood the need to balance paying down debt while thinking about the future.
"You can’t wait until everything is perfect to start investing, because if you do, you won't ever start," says Montanaro. "I don't think paying off debt should come at the cost of not saving and not investing. You may not be able to kick it into high gear, but you should certainly begin saving."
3. Always match
Whether they were focusing on paying off student loans or investing in the future, both were committed to fully matching their employer's contribution.
"Whatever the case may be, at minimum put in the same amount as that match, otherwise you are leaving money on the table," says Robinson. "Even though this is a very simple concepts, many individuals don't understand that you are not going to have an opportunity to get that money back."
She continues, "You can start in that program at anytime of course but if you start matching when you are 28 versus 23, that will make a huge, huge difference."