Funding Education without Mortgaging Your Future

A major US insurance company will begin in January 2020 to make matching contributions to the 401(k) accounts of its employees who are repaying student loans.  The company will match dollar-for-dollar the payments made by an employee to repay a student loan up to 5% of the employee’s salary to a maximum $6500 per year (source: Pensions & Investments).

This accomplishes two things simultaneously; encouraging quicker payoff of debilitating student loan debt and building the habit of saving for the future without sacrificing the needs of today.  Saving in a company sponsored retirement plan is one of the best things anyone can do to take control of their future.  The balance in your retirement savings account means you will dictate when you want to retire, not the government because the age to get your full social security benefit is certain to be extended.

As far as the student debt is concerned, if you already have it, pay it off as quickly as you can.  If you are considering it, use this rule of thumb:

Borrow no more than your expected first year’s salary.

If you intend to teach school and the starting salary is $40,000 per year then that should be your maximum student debt.  This may require living at home for the first couple of years while getting your basic course work at a community college.  It may also mean stretching out the college experience 12-18 months to allow for a lighter course load so you can work part-time.  Whatever path you choose, don’t mortgage your future for an education at an expensive school.  In the end, it’s your work ethic that will make the difference in your career long after the school listed on your resume is forgotten.

Any opinions are those of Tim Holcombe and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. This material is provided for educational purposes only and does not constitute investment advice. Prior to making an investment decision, please consult with your financial advisor about your individual situation.