Ask an advisor: Student debt is trapping me at home. How do I escape?

July 31, 2023 6:34 PM

A woman in New York says she can't afford both rent and her student loans, leaving her trapped in her parents' apartment.

Welcome back to "Ask an Advisor," the advice column where real financial professionals answer questions from real people. The topic can be anything in the world of finance, from retirement to taxes to wealth management — or even advice on advising.

Today's question is on a topic that burdens millions of Americans: student debt. In total, U.S. adults owe a staggering $1.78 trillion for their educations, according to the Federal Reserve. That's more than any other type of debt except mortgages.

And this debt is pervasive. More than half — 54% — of college graduates in 2021 took out student loans, according to the website LendingTree, owing an average of $29,100 at graduation. In general, 43.4 million Americans — 13% of the population — are saddled with student debt, according to the Fed.

As a result, millions of Americans begin their adult lives with a significant financial handicap. From the moment they start their first jobs, they must balance the expenses of daily life with the debts of their college years — and they can't always afford both.

That brings us to today's question. A young woman in New York, highly educated and working in an elite profession, still feels blocked by her student loans from living a fully independent life. Here's what she wrote:

Dear advisors,

I'm a 33-year-old occupational therapist in New York City, and I'm feeling trapped by my student debt. I want to move out of my parents' apartment, but I can't imagine paying for both my loans and a New York rent.

As of right now, I owe about $49,400 for my graduate school education. I pay $510.88 each month, including my interest of 7.9%, through a Pay As You Earn income-driven repayment plan.

As long as I keep living at home, this debt is manageable. I work with disabled kids at a public school, and my salary is $89,191. But I don't want to live at home, and rents in New York are insane — the average studio apartment now costs about $3,400 a month.

How can I afford that on top of my loans? Is there some strategy or tool I could use? Can you help me form an escape plan?

Thanks in advance,

Mired in Manhattan

And here's what financial advisors wrote back:

Don't forget forgiveness

Jay Zigmont, a certified financial planner and the founder of

Childfree Wealth

in Water Valley, Mississippi

Since you work in a public school, you may want to look at the Public Service Loan Forgiveness program for your student loans. If you plan on staying in public service jobs, you can have your student loan forgiven after 120 payments. Additionally, you may be able to get credit for the COVID forbearance period if you were working at the public school during that time.

In addition to getting into the PSLF program, you should look at enrolling in the new REPAYE/SAVE plan. It is likely to lower your payment, and interest will not accrue if your minimum payment is less than the interest (i.e. the loan stops growing). With a salary of around $90,000, your payment should be reasonable.

Once you have a plan for your student loans, you can look at the rest of your life and your financial plan. It does not make sense to pay extra on the loan if you are doing the PSLF program, so put the rest towards your goals.

Compromise is key

Jeremy Bohne, the founder of

Paceline Wealth Management

in Boston

New York City is among the most expensive places to live in the country, and that's why many people who live there make compromises that they might not have to make if they lived somewhere else. For some people, this means living in a different borough within the city, or in nearby areas in Connecticut and New Jersey. For others, it means having roommates rather than living alone.

It can also be worth looking for a rent-stabilized apartment, which are actually quite common in New York. Rent increases for these are limited, so they can be priced meaningfully below market.

And because so many people are in a similar situation, price support for studio apartments in particular tends to be strong. During times when housing prices temporarily decline, studio apartments don't drop in price as much as larger units because many people who currently have roommates want to live on their own.

From what you describe, it sounds like living at home, or alone in Manhattan, could both prove to be challenging, but some combination of flexibility in location or roommates could provide some breathing room. If you choose the roommate route, my advice is to make sure you get along with that person — or better yet, find someone who travels frequently for work.

The rent is the rub

Noah Damsky, a chartered financial analyst and principal at

Marina Wealth Advisors

in Los Angeles

This is a tough spot, but there are some options to consider. It sounds like you may qualify for PSLF, which may absolve your debt after 10 years, so keep an eye on that. Now may not be a great time to refinance, but it could be an option when interest rates are more attractive than your current loan interest rate.

One option is to move out with roommates. While studios might cost $3,400, two- or three-bedroom apartments might be more affordable per person. However, the trade-off is that it'll be a dent to your cash flow and could mean it takes longer to save for a down payment, if you have any interest in buying one day.

Another option is to consider other locations. With loan payments of around $500 per month and student rents of $3,400 per month, eliminating the monthly debt payment might not change the situation meaningfully. The root comes down to high rents and not enough cash flow to pay those rents. Either income needs to increase, or costs — the loans being only a small slice of that — need to decrease. Reducing expenses might be the most feasible lever to pull at the moment.

Ask an advisor: Student debt is trapping me at home. How do I escape?

Don't forget forgiveness

Compromise is key

The rent is the rub

Lots of doors still open