Student loan debt creates opportunity for advisers

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More than 43 million Americans have more than $1.3 trillion in student loans — more than doubling from $600 million in 2006. This dramatic increase is creating a crisis for younger workers, an opportunity for brokers and a push for legislators to do something.

Seven-in-10 graduates from the class of 2016 have student loans, with an average loan balance of $37,172, according to Brian Walters, senior vice president at GradFin, a student loan debt repayment company. On top of that, 90% of borrowers do not know their interest rate, he explained Tuesday during remarks at EBA’s Workplace Benefits Mania in Las Vegas.

Because of student loan debt, younger employees often can’t get other loans, such as for purchasing a house or car. Student loan debt is also affecting retirement savings, as 51% of employees with student loans are contributed 5% less of their pay to their 401(k), according to Aon research.

There is a toll on employee productivity, as well. Half of employees with student loans spend time at work dealing with financial pressures versus 23% without student loan debt, explained Chris Walters, CEO of GradFin.

This has caused employees to seek a company that offers student loan assistance benefits, with 80% of employees saying they would like to work for a company that offers that benefit, Chris Walters said.

In 2017, just 4% of companies offer student loan repayment assistance, but the industry is expected to grow to 26% by 2019, according to the Society for Human Resource Management.

“This market is set to grow and you can be in the beginning,” Chris Walters said to the room of brokers. “This is a new thing you can talk to clients about.” His company’s biggest client is retailer Urban Outfitters, but they have RFPs with a few companies in the Fortune 50.

Congress is also considering two proposals to change how employers treat student loan debt repayment from employers and “if we change the tax law, this market will really explode,” Chris Walters said.

Congressional change
Today, student loan payments made by employers to their employees are treated as compensation for tax purposes, with $7.65 in payroll tax required for every $100 contribution by an employer.

A bill in the House, with 80 bi-partisan co-sponsors, would permit up to $5,250 a year in student loan repayment assistance as tax free.

A second proposal, out of think tank the Aspen Institute, would allow employees to use up to $18,000 from their 401(k) for student loan repayment assistance.

Employers and advisers take note when offering benefits to help workers pay down their loans, as well as competitive salaries.
August 11

“Not many young workers get close to the $18,000 [401(k)] cap,” Chris Walters said. “This proposal would allow employees to use a portion of that 401(k) exclusion for student loans, … and is generating a lot of positive feedback on Capitol Hill.”

“The chance of this passing increases by the day,” he added.

However, Chris Walters admits there are issues with legislation, including a “dysfunctional Congress,” which is not passing many bills.

If Congress does not act, the industry may look toward states. Connecticut and Massachusetts both have pending legislation that would offer tax credits on state taxes for employers who offer student loan debt repayment assistance.

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