Holistic Advising Requires Student Debt Counseling

Recent college graduates naturally look forward to their first well-paying job—and they often have a lot of ideas about what they will do with their income having nothing to do with paying back student loans or saving for retirement. 

The challenge of ballooning student loan debt impacts all of the generations in the work force, warns Matt Sommers, vice president and retirement strategy group leader at Janus Henderson.

As such, it should be a topic that retirement plan advisers understand thoroughly, he tells PLANADVISER. While a pestering issue for clients, paying back student debt requires commitment and consistency and is by no means optional, Sommers says. Both for Millennials already holding student debt and for Gen Xers and Boomers saving for their kids’ future college expenses, advisers can be an important sounding board and a source of support services.

“Advisers are in a great place to come in as an independent, neutral third-party, to meet with these young adults or their parents,” Sommers says. Advisers can even think about planning counseling sessions with their clients that are timed with the back-to-school season.

The lessons advisers can share are many, Sommers notes. Boomers and Gen Xers can be encouraged to take advantage of tax-qualified 529 college savings plans, while those with student debt can be coached on the crucial importance of attempting to save as much as possible for retirement and emergency expenses—even as one pays back the debt.

Encouragingly, the retirement plan marketplace seems to be growing more cognizant of the student loan issue. For example, a new program being rolled out by Fidelity enables employers to make after-tax contributions towards their workers’ student loans, while also opening up educational resources and support for the individual employees. Fidelity will pilot the program in the fourth quarter and do a full rollout in 2018, and the firm notes that 86% of young workers say they would commit to remain with their current employers for five years if this service was offered to them.

“The whole goal is to help people think through what loans they have and then empower them with information on what are the choices they have in front of them,” explains Akhil Nigam, managing director of Fidelity. “It’s not generic information, it works with your numbers and your personal situation.”

Through the contribution program, employers can help pay down their employees’ student loans through the utilization of a new automated recordkeeping service, similar to those of 401(k) and 403(b) benefits.

“Employers can say who’s eligible for their program and how much they get, and we’ll administer the backend—all the payments, routing and operations down to the loan services on behalf of their employees,” Nigam says.

Sommers concludes that advisers should generally recommend consolidating or refinancing student debt into one loan, where possible, in an effort to secure a reduced interest rate. Similarly, an alternative payment plan may suit individuals who are drowning in a large monthly payment and cannot afford to put anything away for retirement.