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Student loan obligations are often thought of as a young person dilemma. After all, younger people are nearest removed from undergraduate and graduate studies, meaning their loan obligations are the heftiest.
Smart advisors realize that there’s a broad swath of clients that are potentially affected by student loans – an issue that’s returning to the financial forefront following the recent restart of payments on government-backed student loans. In a well-intentioned move, those payments were halted due to the coronavirus pandemic, but a case can be made that the forbearance period last too long and that politicians favoring it should have known that many voters simply weren’t saving for a “rainy day” they knew would be coming.
Alright, so hindsight is 20-20. What’s clear as day right now is that student loan payments are back in focus and advisors should realize that affects more than just younger generations. A new survey by the Nationwide Retirement Institute found that 12% of U.S. workers ages 45 and beyond are still contending with student loan debt.
That’s pertinent information for advisors because resumption of those obligations is a source of strain for many of those borrowers.
Student Loan Debt Hinders Retirement Planning
It’s not unreasonable to expect that many of those in the 45-plus camp that are still servicing student loans either have advanced education or took out the loans for their children. Either way, dealing with student loans in the 45+ age range is a headwind to other important financial pursuits.
“Most of these individuals (61%) agree the reinstatement of student loan payments has negatively impacted their financial stability and long-term planning. Another two-thirds (66%) agree repayments will significantly affect their ability to save for retirement,” according to Nationwide.
Putting the aforementioned 12% figure into context, that represents about 16.8 million Americans 45 and older that are still paying student loans. With a number like that, it is likely advisors are working with some clients in that boat. It’s also a sign that those clients can benefit from enhanced planning and advice in terms of both near-term goal setting and retirement savings.
“Depending on their specific situation, they may want to adjust retirement plan contributions, explore alternative income sources, or find ways to reduce expenses to more quickly pay down debt,” adds Nationwide. “For some, paying down debt as quickly as possible and cutting spending in other areas will be the best strategy; for others, it may make sense to pay off loans over time to prioritize other ‘worse’ debt or emergent expenses.”
Other Options to Consider
Helping clients navigate the student loan payments landscape isn’t difficult. Some of the solutions are remarkably easy. Those include understanding each client’s situation (it’s likely no two are alike) and encouraging clients to ask about student loan assistance options at work – a benefit some employers offer.
Point is there are options out there and many borrowers may not be aware of the choices they have. That’s where advisors can add value.
“Clients may not be aware of the many options available to manage their student loan debt whilst simultaneously saving for retirement. Income-based repayment plans, loan consolidation, refinancing or federal programs should be discussed with your client based on what they may qualify for,” concludes Nationwide.