Managing Student Debt and Retirement Savings: How to Overcome Financial Obstacles for a Secure Future

Voiceover: Welcome to The Wave Strength: Innovative Solutions for a Secure Retirement. Presented by Pacific Life.

Destiny Lara: Hello everyone. Welcome to The Wave Strength podcast. I'm Destiny Lara, AVP of participant experience and financial education at Pacific Life. I'm excited to have Dr. Qi Sun, our financial economist, with me here today to dive into her latest edition of the newsletter, Financial IQ with Dr. Qi. Qi, welcome.

Qi Sun: Hi, everyone. This is Qi again with The Wave Strength, and I'm so happy to have this episode with Destiny.

Destiny Lara: This latest episode is all about student loans and the impact it has on retirement readiness and savings in general. Qi, let's start with just the sentiment of today's college students and how they're feeling about student loans.

Qi Sun: Yeah, sure. In order to put together this article, I do some research by myself. So one interest study I find is from Ohio State University. They conduct a research to understand the college student financial wellness. One interesting finding is they mentioned that actually students hold a very high level of aversion towards student loan.

So basically, it means they don't want to use student loan. And they also discussed the top three reasons why students don't want to use student loan. The first one is they think student loan brings unnecessary stress on themselves. I think which is very reasonable, right? You don't want to have a number hanging on the top of your head, right?

And the second reason they think student loan will drag down stop them having their wants in the future. And I think this is actually not only their concerns. I also mentioned in the article, based on the data, I actually find that student kind of stop, or the future graduate, to have to stop, slow down their decision, this kind of lifetime decision.

For example, student loan will actually stop them, or I will say, slow their decision to buy their first home, and maybe, slow down their marriage, and this decision to have their first child. So this is our real, I would say, realities, not only about students concerns. And the third reason is they think students, they are not able to pay back the student loan on time, which I think also a reality, right? I still remember there is one example in my life. So I remember I met this medical graduates when I take an Uber and he was the Uber driver and he was like, he is finishing the medical school, but his first full-time job will not start probably 8, 9 months later, but he has to start paying back a student loan, which is as much as I think he mentioned like almost $1,000 to pay back.

So he has to do this part-time job, Uber driver job, to pay back a student loan on time, actually. So this is quite a reality, I would say.

Destiny Lara: Yeah, and it makes a lot of sense to, like you said, have that hanging over their head as they're trying to concentrate on their schoolwork. But at the same time, student loans are a necessity for a lot of college students because it's an expensive cost that not everyone has saved for.

Qi Sun: Yeah, right. That's I would say, another side of the harsh reality. We see the education costs keep increasing over years, and sometimes I'm joking, the increase rate for education is even higher than my salary increase rate, right? So for most students, they're not actually an option to use student loan. They have to do that, right?

Destiny Lara: Yeah. I know it was part of my financial plan in terms of getting a college education and something that I had to work through myself, which brings me to the after-college and when it comes time to pay that off and the end result. And that student loan financial burden is a little disproportionate in terms of the financial well-being after college.

So, particularly for women, one of my demographic, can you talk to us about that?

Qi Sun: Yeah, I think you are absolutely right. And I'd touch a little bit on how student loan impact graduates with different demographic background in the article as well. So, I would say one typical thing I found based on the data.

So that data is tracking graduates for up to 10 years after their graduation. So based on data, I realized that the female graduates with student loan are generally worse off than the male counterparts. So I use different barriers to check how well they're doing with their personal finance. In one barrier is to check whether they have enough cash on hand to cover any liquidity needs or slash emergency needs in the next month.

The data actually said that the percentage of female heavy student loan borrowers reporting having difficulties to have the $2,000 emergency cash on hand is actually 50% more than the male borrowers. So this is very significant difference between the financial wellness between female borrowers and the male borrowers.

Destiny Lara: Yeah. And that research also dove into racial differences as well.

Qi Sun: Yeah.

Destiny Lara: What did you see there?

Qi Sun: So actually once we consider the racial difference, it's gonna actually aggravate the problem we see. So with the same measurement, like how much cash they have on hand, we see black female actually on the bottom. We only see 18% of the black female reported they're confident to have that $2,000 cash on hand, but that number is 45% for white male, and I think the Asian male is on the top is 57% of Asian male reported are super confident to have that cash on hand.

Destiny Lara: Yeah. And in that study, they had a comparable amount of student debt, so that wasn't necessarily the driver.

Qi Sun: Right.

Destiny Lara: That, that they had more or less student debt.

Qi Sun: Yeah. I would say yes. That's kinda one thing I want to point out is that I do not think student loan is the only reason that those minority groups are falling behind.

I think, in general, they have this kind of wealth gap existing, and this kind of, those minority groups I think are most likely need more attention from us, from the universities, to help them plan for their personal finance.

Destiny Lara: Yeah, that sounds like a great way to help close the gap between all the, whether it's gender or racial disparities and the wealth gaps there.

I know, Pacific Life is involved in a LIFEVest financial literacy program where low-income high school students who are potentially first-generation college students get the opportunity to go to a campus, a college campus, for a week in the summer, and they learn about things such as financial literacy, and it helps prepare them not only for the college experience, but one of the things that comes out of that is they develop a life plan while they're there.

So they pick a career that they are interested in and pretend that's where they're going to get their first job. And they know what that average salary is starting out. And they put together a budget and figure out how to live off that and figure out how they're going to pay those student loans back as well as save for retirement. So they're starting to think early about putting away something to save for retirement as well.

Qi Sun: Yeah, I think that's an awesome program. I have been with the program once last summer. But overall, I think having financial education for younger cohorts, even including the current college student, is super important.

So why I'm saying this is I think in the article, that's one of the key takeaways I want my audience to have this time is that you don't want student to feel struggle about their finance when they're attending school and eventually they're going to give up the school because of their personal finance issues.

That's definitely not what we want because in the article, I also talk about education is like an investment, right? We're going to pay back in the future. But that's only under the condition you finish schoolwork, right? But for those students who borrowed to attend school, and they're struggling about their personal finance, like budgeting, saving, and paying back at the same time, and eventually they give up, then the investment on education won't actually pay back for them. So this is something I think definitely need to raise our awareness.

Destiny Lara: Yeah there's a balance between figuring out how much debt to take on and that you're going to have to pay back and how much school to have so that you don't have that burden hanging over you while you're trying to concentrate on your classes.

Qi Sun: Right. Yeah, exactly. So I think overall financial education, like what we're doing right now, I think is super important for the coming cohorts, for those students who are going to college, and for those currently in college. So I think a lot of things for us to go in the future.

Destiny Lara: Yeah. And I couldn't agree more. And, I actually have two nieces graduating high school there; they just did. And I thought to myself, "How can I make a difference with them just as they're starting out now?" They're going to college and starting their life after high school.

And so what piece of information can I leave with them and help increase their financial knowledge as they're getting started? So I decided instead of handing over just the normal check that most people write and put in a nice graduation gift card to write a check, but have them open a Roth IRA. And just, even if they let it sit there through college they'll get to that first experience of learning how to invest and watching it grow while they're in college.

And then hopefully that way they're not starting from nothing when they do graduate and feel like even if they can only put in $20 a week, when they start their career, that's okay; it's building upon what they've already started. And if they're graduating college, and maybe when they do graduate college, another great gift is to make a student loan payment for those graduating seniors as well.

Qi Sun: Yeah. I think that's a brilliant idea and I can not just share more with me what they are doing in the future, just update me.

Destiny Lara: Absolutely. I'll keep you posted.

Qi Sun: Yeah, for sure.

Destiny Lara: Qi, thank you so much for joining us today and explaining to us how student loans can be a challenge for college students as they embark on their career and balance paying off those student loans with other financial obligations.

Qi Sun: It's my pleasure. And thank you, Destiny, to having me with The Wave Strength again. And I am glad to share this with our audience. And I think it's super important to have this information delivered to them, like education is something we definitely need to do for our coming, like younger cohorts. And just look forward to our next episode.

Destiny Lara: Yes. Thank you everyone, for joining us on this episode of The Wave Strength podcast. We'll see you next time.

Voiceover: This has been another episode of the wave strength presented by Pacific Life. Don't forget to catch us on YouTube and make sure to subscribe. Although this podcast is presented by Pacific Life, the opinions and views expressed are those of the hosts and participants, and do not necessarily reflect Pacific Life's views on any of the topics discussed.

Unless otherwise noted, Pacific Life is unaffiliated with any other company mentioned. Pacific Life is a product provider. It is not a fiduciary, and therefore does not give advice or make recommendations regarding insurance or investment products. Pacific Life, its affiliates, its distributors, and respective representatives do not provide any employer sponsored qualified plan administrative services or impartial advice about investments and do not act in a fiduciary capacity for any plan. Pacific Life refers to Pacific Life Insurance Company and its affiliates, including Pacific Life & Annuity Company. Insurance products can be issued in all states except New York by Pacific Life Insurance Company or Pacific Life & Annuity Company.

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Jim Breen: Thanks for joining us on today's show.

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