Study: Grads Need To Erase Debt As Soon As Possible

It’s graduation season and, along with finding their first real-world jobs, new grads need help managing their finances.

Many students will begin their professional lives burdened by financial anxiety and soaring student loan debt, according to research from EVERFI and sponsored by AIG. Among the study’s findings:

• Managing money remains the most daunting challenge for college students, with nearly half of college students (47%) saying they do not feel prepared to manage their money.
• Six in 10 students have already taken or plan to take loans to cover their tuition bills – alarmingly, only 65% of borrowers plan to pay off these loans on time and in full.
• Only 49% of students plan to follow a budget, down from 76% in 2012. Generation Z students trail behind with only 37% committed to budgeting.
• Only 60% of students plan to pay their credit card bill on time, down from 85% in 2012. For Gen Z students, it’s even lower, at 47%.

“We focus our children on academics and getting ready for school, but we are much less focused on helping them with financial readiness,” said Rob Scheinerman, president of AIG Retirement Services. “There were some interesting points in the study about people saying they felt ready for the academic rigors of college but not the financial side.”

Student loan debt has implications for the workplace as well as for public policy, Scheinerman said.

“What does student loan debt mean for people and the levels of stress they are carrying into the workplace?  What does that mean for employers? What does that mean for policymakers?”

Employees in their 20s and 30s want workplace benefits that would help them to pay down their student loans and think about student loans relative to the size of their income, Scheinerman said. The ability to provide a financial advisor as part of a workplace benefits plan would be helpful so employees can sit down and map out a budget or think about where you contribute your next dollar – do you pay down student debt, pay off credit cards or save for retirement?

As for public policy, Scheinerman cited the Retirement Parity for Student Loans Act, which would permit 401(k), 403(b), and SIMPLE retirement plans to make matching contributions to workers as if their student loan payments were salary reduction contributions. The bill helps workers who cannot afford to both save for retirement and pay off their student loan debt.

But despite the dire study findings about Gen Z students and their financial challenges, Scheinerman said the news is not all that bad for that age cohort. “We see that as people get into their 30s, they have their financial situation more under control,” he said.

What does student loan debt have to do with retirement readiness? Scheinerman said, “You can never start too early to save for retirement. Graduating with debt can decrease likelihood of having retirement savings.

It impacts job choice, it impacts family formation and homeownership. So all of the financial security tools that people have going forward is impacted by the student debt they carry getting out of college.”

Scheinerman said when he sees young adults, “I see an incredibly bright and dynamic group of people who are changing the world in many ways. But they are carrying this enormous debt.”

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.

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Susan Rupe is editor in chief, magazine, for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].