Laurel Taylor is excited and frustrated over recent government action concerning student loan debt and its impact on retirement savings.
The MIT grad and CEO of innovative student debt reduction service FutureFuel.io likes provisions contained in SECURE 2.0. As for the Biden Administration’s student loan repayment extension, not so much, with another moratorium to run until the end of August.
Calling the latter’s cost extraordinarily expensive, Taylor noted its $5 billion a month price tag with a total cost of over $130 billion to taxpayers so far.
“What’s unfortunate about this extension is that it is not necessary,” she said, noting that government repayment programs and firms like FutureFuel are here to help. “The original moratorium in March 2020 was necessary for immediate COVID 19 relief, yet borrowers have been in this rolling state of confusion for the last two and a half years.”
It’s been extended multiple times within 30 days of when payments were scheduled to resume, which created borrower confusion. She sees users of the FutureFuel platform spending time trying to understand what’s happening, when payments will continue, and how it will affect their interest rates.
And technology (or lack thereof) is primarily to blame.
“The federal government has made terrific federal repayment plan programs available to borrowers, but the problem is that they’re encouraging borrowers to get into these repayment plans by fax machines,” she added. “The Department of Education and Federal Student Aid need to move from fax machines to smartphones to solve the crisis for 43 million Americans. I’ve been more reserved about the moratorium’s impact in the past, but there’s just no need for it.”
She is much more bullish on recent legislative moves, especially the recent House passage of H.R. 2954, “Securing a Strong Retirement Act of 2022,” also known as SECURE 2.0.
“It’s intelligently designed around introducing incentives because right now, borrowers have not paid since March of 2020. They found multiple other ways to leverage that $393 average monthly payment for rent, groceries, bills, and hopefully for savings. They now have to find that money in their wallet again, which is a lot.”
Assuming Secure 2.0 passes, borrowers—with no change in behavior for those paying for the first time—can receive a company match on those payments. It’s a powerful motivator to stick with repayments, which is encouraging because there’s a broad concern of mass defaults after two and a half years.
Yet there’s another reason for SECURE excitement; borrowers “will no longer have to choose between their past and future” with financial health—or choosing between loan repayment or saving for retirement.
“I think that’s the biggest impact,” she concluded. “MIT AgeLab data show that users sequence debt first and then savings. Now, borrowers can make simultaneous progress. If they’re paying $350 a month in student loan payments for 10 years, it equates to $450,000 in retirement savings (assuming an 8% return). It’s approximately double what Baby Boomers have for retirement today. So SECURE 2.0 really is transformative for retirement income.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
