As Student Loan Repayments Resume, The 401(k) Lady Explains Student Debt Impact on Retirement Savings
Sep 18, 2023Episode 56
Voya Financial
Today’s episode features guest host Allison Dirksen, head of Wealth Solutions Sales at Voya. Joining Allison is a repeat guest Jeanne Sutton, to talk about the important topic of student loan debt support. Jeanne is best known in the industry as the “401(k) lady,” but also serves as a financial benefits advisor at Strategic Retirement Partners. The impact of student loan debt on Americans today is impossible to ignore, particularly for employers when it comes to the broad scope of workplace benefits and savings options to offer the workforce today. Tune in to hear more about what Jeanne has to share when it comes to the opportunities available for borrowers, and their employers to help support this critical challenge facing the savings landscape today.
Allison Dirksen is a Registered Representative of Voya Financial Partners, LLC
Jeanne Sutton and Strategic Retirement Partners are not affiliated with the Voya® family of companies.
Today’s episode features guest host Allison Dirksen, head of Wealth Solutions Sales at Voya. Joining Allison is a repeat guest Jeanne Sutton, to talk about the important topic of student loan debt support. Jeanne is best known in the industry as the “401(k) lady,” but also serves as a financial benefits advisor at Strategic Retirement Partners. The impact of student loan debt on Americans today is impossible to ignore, particularly for employers when it comes to the broad scope of workplace benefits and savings options to offer the workforce today. Tune in to hear more about what Jeanne has to share when it comes to the opportunities available for borrowers, and their employers to help support this critical challenge facing the savings landscape today.
Allison Dirksen is a Registered Representative of Voya Financial Partners, LLC
Jeanne Sutton and Strategic Retirement Partners are not affiliated with the Voya® family of companies.
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Speaker 1:
You're listening to the Hire Through Retire podcast brought to you by Voya Financial. We're talking to the best and brightest in the industry to bring you the latest in benefits, savings and investment trends in the workplace, tackling all things from 401Ks to HSAs and everything in between. Come along with us on our journey to help all individuals become well-planned, well-invested and well-protected.
Speaker 2:
Welcome back to the Hire Through Retire podcast. I'm Allison Dirksen, head of Voya's WellSolutions sales team at Voya Financial, and I'm very excited to be joining you as our guest host for today's episode. Today we're talking about an issue that has certainly been discussed on this show in many forms, but today we are really going to take a deeper dive into a topic, and that is our student loan debt. The impact of student loan debt on Americans today is really it's impossible to ignore, particularly for employers when it comes to the broad scope of workplace benefits and saving options that they are offering their workforce today. With time, legislation now is making the support more broadly available, which we thought. There is no better time than to talk about this important topic, than to do it again now. Joining us for our discussion is another one of our repeat guests on the podcast. Offering her perspective from the advisor lens is Jeannie Sutton, who some of you might know her best as the 401k lady. Jeannie is a CFP, a CPFA and financial benefits advisors at Strategic Retirement Partners, where she has built an incredibly successful practice, serving not only as an investment advisor, representative and financial consultant for both individuals and businesses. So, jeannie, thank you so much for joining us today. We're so excited to have you back. Thank you, allison, I'm excited to be here. Wonderful.
Speaker 2:
Well, let's start to begin to set the stage for our listeners. Then, of course, we all know and hear about the impact and reality of student loan. Debt has not just been on those leaving colleges, but the parents of those who are supporting their children as well. I'll tell you, this has been a very hot topic for my friends and I, as many of them are sending off their first children to college and really kind of discussing how best they either want to structure their savings to support their children or guide them through the process of taking out loans. So, to that point, a couple of stats I just wanted to throw out for our listeners today.
Speaker 2:
According to the latest data from the Federal Reserve, there are about 28,000, 29,000 or so owed per borrower on average, with 55% of students from public four-year institutions having student loans and 57% of students from private, nonprofit four-year institutions taking on education loans. So there is a lot of discussion in the media around student loans this year as well. We know SCOTUS rejected President Biden's loan forgiveness plan. However, a lesser discussed change to the federal student loan program is the save repayment program it's an income-based repayment plan will in fact go into effect this fall, which will have, what we think, a pretty big impact on borrowers. Jeannie, I know you've talked a lot about this on your LinkedIn and in other forums, so can you talk a little bit more about how these particular changes are going to end up affecting our borrowers, and I'm happy to talk about it because I don't think people are talking about it enough.
Speaker 3:
Once the $10,000, $20,000 forgiveness was struck down, I think just everybody kind of lost interest in the student loan conversation, and it's one we need to be having with our employers and our employees, and I can't emphasize enough how generous this new repayment program is. We're calling, it's called save, and it truly does have the ability to save many, many borrowers not only hundreds of dollars a month on their loan payment, but also, eventually, full forgiveness at the end of the term.
Speaker 2:
So how does this have an effect, though, on the borrowers from a financial perspective?
Speaker 3:
So basically, it took previous income-based repayment programs and put much more generous terms around them, so it really reduced the percentage of their income that the payment can be based on. Also, what the federal government is using to calculate your disposable income is the federal poverty limit, and it increased that number in the calculation substantially, up to 225%. If I were to give people a ballpark range, essentially, if you're a single person earning less than roughly $35,000, hypothetically you could have a $0 required payment. If you're a family of four earning up to roughly $60,000, you could hypothetically have a $0 payment. Now, this is backwards advice from what we used to always give.
Speaker 3:
So when, I started in the industry. We always said choose a 10-year pay program, pay it off and be done right, like move on, you've got to pay your student loans. The other component to the SAVE program is, if you continue to make your payments on time for 20 years for an undergraduate loan it's 25 for graduate but 20 years for undergraduate then any remaining balance is forgiven. So the financial advice has changed from do what you need to do and pay off your loan to what is your minimum loan. How do we make sure you pay the minimum loan payment and eventually get forgiveness at the end of your term? So it's a totally different strategy.
Speaker 2:
You know it's so interesting the way you broke down the different populations that would be supported through the SAVE program. Many people are going to feel some form of relief. However, we also know this only covers a portion of people that are truly struggling with student loans. It still ends up being a major issue that ends up being top of mind for the employers, and when I think about your role specifically, you have this beautiful juxtaposition of working with individuals and companies. So how is student loan debt specifically impacting workers' ability to save in other areas, such as building an emergency savings fund or even truly saving for that future retirement?
Speaker 3:
Substantially so. The naysayers often say why are we focusing so much on student loans and the CFPs of the world and the benefits advisors of the worlds are pointing out? Because it's impacting literally everything else. So we know that about 25% of our population is not even saving for retirement because of student loans. We also know that about 40% of those with student debt don't have an emergency savings, which creates this effect of financial instability. I can't highlight enough that all of these surveys and these statistics have been ran in the last three years when student loans have been in forbearance. So I don't even think employers are truly appreciating or even seeing the potential impact, because it is estimated that only 1.16% of student loan borrowers have continued payments the last three years because they haven't had to make them. So I think the impact on retirement savings, emergency savings, not to mention lifestyles delayed marriage, delayed children, the mental stress of it all I think it's gonna be far more than even we think it is today, because 98% of people haven't been making their loan payments during the last three years.
Speaker 2:
We've thrown out a lot of stats and we're gonna continue to do that during our conversation today, so here's another one I want to throw out to kind of keep our conversation going is that the Society of Human Resource Management said only about 8% of US employers provide student loan repayments to eligible employees. It's a percentage pretty much been unchanged for the last five years. So the one thing we know here that can help specifically when talking about the impact of student debt can be that you just said it that ability to save for retirement, and do we really know what that impact is going to be? So, with what has been passed with Secure 2.0, which allows sponsors to give a match to employees paying off their student loans as if they were saving in their 401k, do you see that as a potential game changer for employers and the impact that that particular change in legislation could have on employees' ability to save for retirement too? I?
Speaker 3:
do. I think the Secure provision is a little bit more widely adoptable I'll say that than the initial student loan repayment program. So, like, let's pull back the lens. You know, 30,000 feet this is the conversation I'm having with our plan sponsors and our employers. If you are a demographic where you know student loans are an issue and you know recruiting and retention is a challenge so think of a hospital, a law firm, an engineering firm where you do have a substantial base of employees with student debt the pinnacle is a student loan repayment program because you are putting employer dollars directly on the loan. So if you're interested in that, you know I say you need to go all the way to repayment program.
Speaker 3:
What Secure 2.0 does is it takes the existing 401k benefit and it expands it. So I mentioned earlier, you know one out of every five people are not saving for retirement because of their student loan debt. This is your opportunity to go back to 25% of your workforce and say we have an existing benefit, we've already budgeted for it. We understand there's a subset of our population that's not getting advantage of the 401k match because they're not saving. We can now consider your student loan payment as a qualified deferral for the retirement plan and make the match on your behalf. And then the key difference is the match goes towards retirement savings, not the student loan program. Still good, still great. You just wanna understand that the dollars are going a different place, and that will at least. Even if the employee can't save for retirement, it at least leverages an existing benefit you offer to get the ball rolling on their retirement account for them.
Speaker 2:
There's so many different types of student loan debt support solutions out there and it can be confusing. So for listeners, jeanie, can you outline a little bit more delineation of those pros and cons of the different solutions, start with for an employee and then kind of wrap up with an employer, if you could?
Speaker 3:
Okay, so I'll try.
Speaker 2:
Yeah, fair point.
Speaker 3:
The repayment programs. The true benefit, the ultimate benefit to the employee, is the employer is helping them tackle the debt and every payment saves them interest. For the Secure 2.0 match, the benefit is that the employer is helping the employee actually build a retirement account even though they themselves cannot save in it. From an employer perspective, the Secure 2.0 match the student loan match again is an existing budgeted benefit, dollar Right. So you have already accounted for it. It's a program that you already have in place and all you're doing is expanding its benefits so that more of your population can take advantage of it. So that's why I said the Secure 2.0 match is like a halfway point, a baby step. It's much more easier for all employers to adopt it.
Speaker 3:
And I'll remind our employers the contributions you're making, whether it be to the 401k as a match or whether it be an employer contribution directly on the student loan program, those are tax deductible Just like any other benefit you offer into the employee. If it's directly on the student loan, it is tax-free income up to a certain limit, which is like $5,250. So if the contributions are reasonable it shouldn't have a tax impact. The other benefit I'll say from an employer perspective, outside of the Secure 2.0, because now we're involving the 401k and we all know NANI or RISA has rules around 401ks. If you're looking to implement just a student loan repayment program, I often say it's the wild wild West. There are no discrimination rules, it's not governed by NANI or RISA. So you as an employer can truly design and implement a program, no matter how specific, how wide, how broad, how high, how low, that meets your specific goals, which is difficult to do too.
Speaker 2:
When you have wild wild West. Sometimes it's hard to narrow the focus and then thus create engagement with your employees too. So when we think about how much the benefit landscape is ever changing and involving, you've touched on multiple options for an employer to implement into their benefits package. Student debt is one of them, but then there's emergency savings, there's HSA, et cetera. How do you counsel your employers in terms of helping their workforce understand the multitude of these benefits so that they actually partake in the program?
Speaker 3:
Right.
Speaker 2:
I'd love to hear where success exists, because it's a challenge.
Speaker 3:
So I would say success exists at first with the employer choosing the right bells and whistles, like. I could theoretically sell all of these bells and whistles to every employer out there, but you don't need all of these in your plan, you know, if you're an organization with heavier student debt or if you're a blue collar organization that has employees struggling to meet monthly needs, right. So ultimate success is finding the right add on and not necessarily adding all of them on. And so I always say you got to start with a survey Survey. Your team members figure out what their pain points are, figure out what they would be the most interested in. Once you decide and let's just say it is an emergency savings through the 401k or something like that you cannot over communicate, you cannot over educate. You have to be the cheerleader for the program. When people don't understand something, they're less likely to take advantage of it, right? So if we don't have some type of auto enrollment campaign tied to whatever you add to the benefit, you have to get in front of people and cheerleading campaign for it.
Speaker 3:
And the advice that I give often to employers and plan sponsors is sometimes, or a lot of the times, it's better received from somebody other than HR. Like we know HR. We know you're the champion for the company, we know you're the champion for human capital. But when employees hear change, even when it's good, when employees hear change from who they see as a representative of the company, they're hesitant, they're doubtful, like what does this mean? What's the catch? This can't be that good. So sometimes you do need an outside party to do that messaging for you.
Speaker 2:
It's so interesting. I'm smiling. If only our listeners could see you know the smile behind the voices here, because it's so true with a lot of things in our life too. You could apply this to your health, and here are doctors telling us all the right things to do, and yet it might take that friend or outside perspective to actually engage on the exact thing that you have been told to do this whole time. Before we wrap up, I do have one more question that I think would be great for our listeners to hear. Many of them are carrying student debt themselves, and so, as you think about what would be the advice you would give for borrowers, as these federal loan repayments are going to begin to resume in less than 30 days here.
Speaker 3:
So I would advise you to take it seriously and not default to whatever repayment program you were doing prior to the deferment.
Speaker 3:
Like I said, there's eight or nine different options and a new one on the market this summer that I believe you have to enroll in by next summer. So there's there's changes, there's deadlines, there's new options and you've got to take the time to consider them and and it's going to play a pretty complicated role, especially if you're going to save route Now. The strategy is to keep your income as low as possible Right, which may mean maybe you do pre tax 401k contributions instead of broth, maybe you do increase your HSA, maybe you marry filing separately which is a new feature, so that your spouse's income is not considered. So I it is much broader and bigger than I think people realize, and there's an entirely new advising field where there's consultants out there that can coach you through the best program for you and to me, if your outstanding student loan balance is the same or more than your annual income, you are well served to pay what you need to pay to have a consultant coach you through the best strategy for you.
Speaker 2:
Awesome, jeannie, this was fantastic. I mean, you have such a way of summarizing what I think are very complicated topics and breaking it down into terms that all of us and our listeners can understand. So we cannot thank the 401k lady enough for joining us today and for your time and dedication to this field. I know our audience really appreciates your insight and guidance.
Speaker 3:
Thank you so much, allison, for having me. It was a great time.
Speaker 2:
And thank you to all our listeners, as always, for joining us. If you want to keep hearing more, remember to go to our show page and hit subscribe to be notified of each new episode. Thank you all for joining us today and stay well.
Speaker 1:
This information is provided by VOIA for your education only. Neither VOIA nor its representatives offer tax or legal advice. Any opinions expressed within do not necessarily reflect those of the VOIA family of companies or its representatives and are not intended to provide specific advice or recommendations for any individual. Please consult your tax or legal advisor before making a tax related investment or insurance decision.
