Student Loan Debt and Your Retirement Plan

As of 2018, student loan debt is now the second highest consumer debt category – behind only mortgage debt – and higher than both credit cards and auto loans.  According to Make Lemonade, a consumer finance company, more than 44 million borrowers have student loans and the collective debt is greater than $1.5 Trillion.  The average borrower owes $37,172.  And, of course, the largest group of borrowers is under age 30.

If you find these stats a little disconcerting, you should.  How this debt is impacting our society is being felt in many ways.  For those who are shouldering this debt, it means that many of the things they would otherwise be spending money toward must instead be used to pay off their student loans.  When you consider that most of the individuals who have this debt are also just starting out in life and need to begin building a life separate from their parents or college, the financial hill they need to climb can be more than intimidating; it can be debilitating.

What’s this have to do with your retirement plan?   For one thing, we are seeing more and more young people unable to contribute to their company’s 401k plan as they need to use those dollars for debt payment.  At first glance, this might not seem like much of a worry for employers, but when you consider that the delay in participation could last for 5-10 years, the real impact to employees who are now falling behind in retirement savings can be huge.  Moreover, think about the increased stresses these borrowers are feeling as a result of just trying to dig themselves out of this financial hole.

Is there something an employer can do?  There are several things actually.  A financial advisor can work with employees to help them with budgeting and cash flow management.  A good advisor can also work with the employer to help craft a way via the retirement plan whereby the employer can still make some “matching contributions” to the plan for those employees who are paying down debt instead of making 401k deferrals.  In fact, this idea is gaining so much momentum that legislation is even being proposed in Washington to codify how to do this.
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Want to learn more about how to help your employees manage the student loan burden?  Give me a call!  I work a lot in this space.