Thanks to the Coronavirus Aid, Relief and Economic Security (CARES) Act, plan sponsors can assist their workers in paying down student loan debt, tax-free.
While the newly established $5,250 employer contribution limit is significant, the reality is that the aid can only do so much to reduce the massive student loan debt load carried by the U.S. workforce. It is therefore important for financial advisers to educate themselves about the student loan debt challenge facing their clients—and not just the Millennials.
When advisers understand the mechanics surrounding loan debt, relaying such knowledge to their clients can end up relieving at least some of their worries, says Laurel Taylor, CEO and founder of FutureFuel.io, a student debt assistance platform. But first, they must understand the complexity behind student loan debt.
“That’s a challenge, because the adviser may not feel as comfortable dealing with federal student loan debt,” she says.
Advisers can begin working in this area by recommending third-party tools or educational materials to clients who are struggling with debt management. For example, Futurefuel.io has recently released a free service called Future Fuel Cares, which teaches participants how to choose the right federally regulated program to manage their debt and how to keep track of their student loan debt.
As a next step, actually implementing debt support solutions within their own practices can be rewarding. To this end, Futurefuel.io also offers a partnership with its white label program, the Student Debt FinHealth platform. Taylor explains that there are two aspects to the feature. One is for the participant and offers tips on managing payment options, and the other is for advisers.
“It helps them understand the level of debt a user has, and it recommends next steps the user can take,” Taylor says.
Scott Snider, founder of Mellen Money Management, recommends advisers understand how tailored student loan debt can be to each client, especially in light of the COVID-19 pandemic. “It’s really a case-by-case situation,” he notes. “Some clients will have to go on repayment plans and minimize what they’re paying, while in other situations, it’ll make sense to pay down more aggressively.”
At Mellen Money Management, clients receive a newsletter outlining several different scenarios, which lets them see which debt experience most closely aligns with theirs. Keeping clients up to date with recently enacted provisions—such as the CARES Act—is beneficial as well.
“We’ll also send out an email to our clients and notify them of what the CARES Act states specifically, so all of our clients with student loan debt are aware of what their options are,” Snider says. However, Snider says, this can prove difficult for clients whose employees have varying degrees of income. “It becomes more challenging to convey that messaging,” he explains.
Both Snider and Taylor emphasize that employers should continue encouraging their workers to pay down debt—if they can—and advisers should too. Under the CARES Act, 100% of payments that employees make to their federal student debt between now and September will go toward the loan, given that interest rates have been cut to zero.
“There are situations where we’ve told clients with student debt to go in and continue making a payment if they have a stable job, because that 100% of that payment is going towards it,” Snider says.
Taylor echoes a similar idea, adding that her company is seeing many employees who remain fully committed to their student loan payments and are taking advantage of the opportunity. “Employees are really leaning into that, even with their own contributions,” she says.