14 April 2024

Student Debt’s Devastating Impact on Retirement Saving

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Fintech and 401k-related ancillary services were front and center of the Global Retirement Partners Advisor Alliance (GRPAA) annual conference in Haines, Alaska.

Laurel Taylor, the founder of FutureFuel.io, began with a stark illustration surrounding student debt, a crushing issue with which many Americans currently wrestle. It wreaks havoc with so many other financial planning and saving goals, and she was called to address the problem due to personal experience.

“Why did I found the company?” she rhetorically asked during her Sunday morning opening session. “I went to Texas State, accumulated $150,000 in student debt, and my mother was a social worker earning $24,000 a year.”

It was never a question of if she would receive student loans; it was always assumed. Her mother applied for and received a Parent-Plus student loan with a 9% interest rate.

Taylor’s education continued with a master’s degree from the prestigious Massachusetts Institute of Technology. Upon graduation, she went to work for Google, had over an 800 on her credit score, and still had the same 9% interest rate on her student loans.

“I knew at that moment figuring this out would be my passion,” she added. “The average borrower takes 17 to 20 years to retire their student loan debt. Americans hold $1.7 trillion in total student loan debt, the second largest debt behind mortgages. I couldn’t believe there were no digital solutions to help.”

Women and people of color hold two-thirds of student debt only compound the problem, and the repayment periods are longer for those demographics due to the wage gap.

“If you’re in your 20s, you shouldn’t need a Ph.D. to figure out how to pay down student debt,” Taylor lamented.

A recent anecdote illustrated the scope of the issue.

COVID suspension 

COVID caused the suspension of loan payments for 46 million Americans, and in October, they will once again be required to pay. The Department of Education sought experts to help understand the potential impact.

“The day I testified, the federal student loan program tweeted, ‘If you have questions, fax your caseworker,'” she said, emphasizing the antiquated technology. “Every decision I’ve made, from the job I accepted to the number of roommates I had, was influenced by my student debt.”

Thankfully, the Consolidated Appropriations Act allowed for several relief provisions to assist employees currently struggling with student debt. For example, plan sponsors can now use tuition reimbursement budgets, which often go unused, to help pay down student debt., 84 percent of employees.

“Fully 84% of workers say student debt negatively impacts their ability to contribute to their retirement plan,” Taylor concluded. “MIT’s Age Lab found that it doesn’t matter if it’s $60,000 or $6,000, the mere presence of debt is enough to block them from saving for retirement.”

FutureFuel.io is a student debt toolbox that empowers businesses, their customers, employees, and partners to “crush student debt in your own native experience, or ours.”

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