Planning early can be a form of student loan debt relief that improves retirement savings. It’s a win-win! Student loan debt relief comes in a number of ways. Research shows that workers with student debt save far less for retirement than they should. A Boston College Center for Retirement Research Working Paper specifically points to this topic. It shows that bachelor’s degree holders with student loans have significantly lower retirement savings at age 30. This is relative to their debt free counterparts. The implication is that making one student loan payment each month lowers contribution rates to the pension plan.
Today’s 43.2 million student borrowers have an average debt of $ 39,351 each, according to Educationdata.org. However, all is not lost. With early planning and ingenuity, early career workers can manage their student loan debt relief. Best of all, students can avoid debt altogether. It is important to note that planning should start early – ideally, when individuals are still students in high school. It may be worth it – retirement savings almost double in households without a student loan. According to a recent study on student loan debt from the Employee Benefit Research Institute (EBRI), the average pension plan balance was $ 46,768 for families whose head of household was under 35 and had a university degree, compared to $ 25,581 for families with student debt.
So how can students plan early to avoid or reduce student debt? James Lewis, co-founder of the National Society of High School Scholars (NSHHS) has a suggestion. Students – and their parents – need to equip themselves with knowledge and a game plan. Here are some tips he recommends to get started:
- Take advanced placement (AP) classes in high school. High scores on the AP tests not only contribute to college acceptances, but high scores can also help pay for college. These credits can cover half or even a full year of tuition fees. Students should start by knowing which colleges accept AP credits and when to start taking courses. Another avenue, double enrollment in college while the student is still in high school, can help deferral costs.
- Consider the military or the ROTC. Students can earn tuition fees through military service and work / study programs. The military is one of the largest scholarship providers in America. In 2019, the military awarded $ 3.2 million in scholarships to members of the NSHSS.
- Look for widely available scholarships. There are a large number of scholarships available – in most cases, more than students (or parents) realize. According to Rachel cruze, bestselling author and daughter of personal finance guru Dave Ramsey, offers another strategy. “Prospective students should make it their part-time job to apply for scholarships and avoid the student loan trap!” “
For today’s early career employees, it is obviously too late to plan options in advance. They will have to find student loan debt relief in other forms. In this case, employers can help by offering benefits such as student loan repayment assistance programs. As the name suggests, student loan debt relief programs exist. These repayment assistance programs are benefits where an employer can help employees pay off some of their student loan debt. Employees welcome the help. In reality, almost half (45%) would prefer student loan payment contributions to retirement plans, such as 401 (k) s and 403 (b) s. For young employees, this number is even higher at 54%. Additionally, due to regulations enacted during the Covid-19 pandemic, businesses can use pre-tax dollars for employer reimbursement assistance up to $ 5,250 through 2025.
Another benefit that employers can take advantage of to help employees seeking student debt relief are financial wellness programs. Financial well-being helps workers prioritize paying down debts and saving for the future. Recent studies have shown that offering financial wellness programs in the workplace can help in other ways. They can help improve the physical and mental health of employees, making them happier and more productive. It benefits everyone.
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff is also executive director of The Plan Sponsor University and is currently a professor at The Retirement Adviser University.