Com­pa­nies Pitch In On Stu­dent Debt

Bloomberg Businessweek (Europe) - - FOCUS ON/ RETIREMENT - −Carol Mat­lack “We re­ally like the ef­fect it has on our abil­ity to re­cruit”

401(k) sav­ings, but not al­ways. Un­claimed 401(k) ac­counts of­ten sit in fi­nan­cial in­sti­tu­tions for years and even­tu­ally are turned over to state aban­doned-prop­erty agen­cies, Turner says. “It’s kind of a black hole.”

Turner’s group has urged the govern­ment to set up a search­able registry of un­claimed pen­sions and re­tire­ment ac­counts na­tion­wide, as Bri­tain and Aus­tralia have done.

One easy way to keep tabs on a pen­sion or 401(k) when you change jobs is to roll the money over into an IRA or your cur­rent em­ployer’s 401(k). There’s a down­side, though. A study last year by the Cen­ter for Re­tire­ment Re­search at Bos­ton Col­lege found that an­nual re­turns on IRAs av­er­aged only 2.2 per­cent from 1999 to 2012, com­pared with 3.1 per­cent for 401(k)s and 4.7 per­cent for tra­di­tional pen­sion plans. Higher man­age­ment fees ac­count for at least some of the dif­fer­ence, the study found. The bot­tom line Un­claimed U.S. pen­sion ben­e­fits may to­tal as much as $8 bil­lion an­nu­ally. Aban­doned 401(k)s leave bil­lions more in limbo. Em­ploy­ers can of­fer to match pay­ments on stu­dent loans Young peo­ple have heard the ad­vice again and again: Be­gin sav­ing for re­tire­ment as soon as pos­si­ble. But be­fore they can start to build their nest eggs, many twen­tysome­things have to re­tire stu­dent loan debt. “It’s the big­gest weight on my life right now,” says Nolan Grace, a 24-year-old who grad­u­ated from Pur­due Univer­sity with what he calls “very sig­nif­i­cant” loans.

Luck­ily, Grace’s em­ployer, BP3 Global, is help­ing him with loan pay­ments. The Austin-based soft­ware-ser­vices com­pany uses a plat­form called Stu­dent Loan Ge­nius to let it match as much as $100 per month In­suf­fi­cient Funds Per­cent­age of Amer­i­cans whose re­tire­ment in­come won’t sup­port their pre­re­tire­ment stan­dard of liv­ing

age 30-39

age 40-49

age 50-59 of Grace’s debt pay­ments. “We re­ally like the ef­fect it has on our abil­ity to re­cruit,” says Scott Fran­cis, BP3’s chief ex­ec­u­tive of­fi­cer. He says col­lege stu­dents seem to be more in­ter­ested in that ben­e­fit than in the com­pany’s health-care and re­tire­ment of­fer­ings.

CEO Tony Aguilar, 31, helped start Stu­dent Loan Ge­nius, also an Austin com­pany, in 2013, build­ing up its cus­tomer base to in­clude 45 com­pa­nies. Em­ploy­ees at com­pa­nies that have con­tracted with Stu­dent Loan Ge­nius have more than $61,000 in stu­dent loan debt on av­er­age, and their monthly pay­ments are usu­ally more than $500 a month.

Aguilar, who grad­u­ated from col­lege with more than $100,000 in stu­dent loans, says he knows as well as any­one how the bur­den is hold­ing back an en­tire gen­er­a­tion. U.S. ed­u­ca­tional debt rose to $1.2 tril­lion last year, six times more than in 2003. The av­er­age re­cent col­lege stu­dent has $31,000 in debt. A study re­leased in Fe­bru­ary by the Cen­ter for Re­tire­ment Re­search at Bos­ton Col­lege es­ti­mates that growth in stu­dent debt will even­tu­ally in­crease the share of Amer­i­cans who will have in­ad­e­quate in­come at re­tire­ment by 4.6 per­cent­age points, to 56.2 per­cent.

A Jan­uary re­port by Face­book, which an­a­lyzed pub­lic posts and polled thou­sands of users anony­mously, found that only 13 per­cent of peo­ple age 21–34 see be­ing able to re­tire as the def­i­ni­tion of fi­nan­cial suc­cess. Their No. 1 in­di­ca­tor of fi­nan­cial suc­cess is be­ing debt-free. How can peo­ple stay fo­cused on the far­away dream of re­tire­ment when they’re ob­sess­ing over meet­ing monthly debt pay­ments? Aguilar says the way is to link the two. His com­pany can The bot­tom line Austin startup Stu­dent Loan Ge­nius has a ser­vice that lets com­pa­nies sync re­tire­ment sav­ings and stu­dent debt pay­ments.

Edited by Cristina Lind­blad Bloomberg.com

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