<p>The average student loan debt in the U.S. exceeds $30,000 and can take years to repay. In this episode of SHRM's <em>Career Compass</em>, join hosts Vernon Williams and Kristy Parola in a discussion with Aaron Smith, the co-founder of <a href="https://www.bysavi.com/">Savi</a>, an organization committed to “tackling the student debt crisis.” In this informative episode, listeners will learn how and why student loan debt occurs, tactics to minimize the amount of student loan debt, and various repayment methods, including loan forgiveness programs.<br /> <br /><b>EARN SHRM RECERTIFICATION PDCs FOR LISTENING TO THIS EPISODE</b><br /><br />Listening to this episode qualifies for 0.75 PDC toward SHRM recertification. <b>All you have to do is listen to the episode to claim your credit: All relevant details, including the Activity ID, are provided during the podcast episode.</b><br /><br />Subscribe to <em>Career Compass</em> on Apple Podcasts, Google Play, Spotify, Stitcher or wherever you listen to podcasts. Check out <a href="https://www.shrm.org/hr-today/news/Pages/Podcasts.aspx">SHRM.org/podcasts</a> to listen to all of our episodes and also hear more podcasts from SHRM. And, be sure to rate and review the show on Apple Podcasts or your podcatcher of choice.<br /><br />Keep up with SHRM online and follow us on <a href="https://www.facebook.com/societyforhumanresourcemanagement">Facebook</a>, <a href="https://www.linkedin.com/company/shrm/">LinkedIn</a>, <a href="https://twitter.com/SHRM">Twitter</a> and <a href="https://www.instagram.com/shrmofficial/?hl=en">Instagram</a>.</p>
The average student loan debt in the U.S. exceeds $30,000 and can take years to repay. In this episode of SHRM's Career Compass, join hosts Vernon Williams and Kristy Parola in a discussion with Aaron Smith, the co-founder of Savi, an organization committed to “tackling the student debt crisis.” In this informative episode, listeners will learn how and why student loan debt occurs, tactics to minimize the amount of student loan debt, and various repayment methods, including loan forgiveness programs.
EARN SHRM RECERTIFICATION PDCs FOR LISTENING TO THIS EPISODE
Listening to this episode qualifies for 0.75 PDC toward SHRM recertification. All you have to do is listen to the episode to claim your credit: All relevant details, including the Activity ID, are provided during the podcast episode.
Subscribe to Career Compass on Apple Podcasts, Google Play, Spotify, Stitcher or wherever you listen to podcasts. Check out SHRM.org/podcasts to listen to all of our episodes and also hear more podcasts from SHRM. And, be sure to rate and review the show on Apple Podcasts or your podcatcher of choice.
Keep up with SHRM online and follow us on Facebook, LinkedIn, Twitter and Instagram.
Vernon Williams:
Welcome back to Career Compass, a podcast from SHRM, a society for human resource management and the SHRM Foundation. Career Compass prepares future leaders today for better workplaces tomorrow.
Kristy Parola:
As the voice of all things work, SHRM supports students and emerging professionals with advice, information, and resources for every step of your career.
Vernon Williams:
Designed for the student and emerging professional, Career Compass delivers timely, relevant, and critical conversations about work to help you succeed in your career journey. Thank you for joining us for this episode. My name is Vernon Williams.
Kristy Parola:
And my name is Kristy Parola. During this episode, we are going to talk all about student debt. We'll cover everything from how student debt occurs, to ways to avoid going further into debt. Something I know I personally could use some help with. And to help tackle this topic, we will be joined by Aaron Smith, the co-founder of Savi, a company whose mission is to help the middle class prosper by tackling the student debt crisis.
Vernon Williams:
With that being said, let's get started. Kristy, I know you went to an in-state college, which in itself was probably relatively smart, even though I know private schools, as well are starting to give a lot more discounts to attract students. But my question for you is, did the amount of debt factor into your decision on where you wanted to attend school, or what role did finances play in your choice of which school to go to?
Kristy Parola:
Sure. At the time being 19, I think finances were the least or the smallest part of the pie when considering where I was going to go to school. I was also going to all schools that were within my residential state, so they were semi cheaper compared to looking out of state. But I also grew up in Pennsylvania where the state schools are some of the most expensive state schools. It was more just about the emotional decision of wanting to go to a school where my dad went to school, where my mom went to school.
Looking back, I definitely think I would've paid more attention to the financial piece of it, as I'm still trying to finish my bachelor's after four years, still attending school. I've definitely racked up my fair amount of student debt and that's what's keeping me from wanting to finish my degree faster, because I need to make sure I have the money to be able to pay for these loans because I do not want to have to go into more debt to finish my degree. Definitely not then as much, but it is more and more a decision now as I'm trying to further my education.
How about you, Vernon? What role did it play for you? I know you went to a few different schools for a few different degrees and I hope this isn't too-
Vernon Williams:
Nothing too personal Kristy, and I think you bring up a really good point of that catch 22. You want to make a whole lot of money in your career, but you need this degree in a lot of cases to get to some of those upper level jobs, which cost money. You're spot on with your analysis of the college experience in terms of the finance portion.
For me, it was a little bit different. I had the good fortune that my dad was a high school guidance counselor, so we talked about finance and what my family could afford, I think even before I got to high school. So it was an easy decision for me to attend a state school. I vividly remember wanting an internship to earn a little bit of money and also get some experience after my first year of college. I worked every single day, all summer long. I think I was making $6 an hour, but I was driving 50 minutes one way into Baltimore. It was a great experience, love the sole proprietorship for information technology I was working for. But when I got back to school and saw the bill going into my sophomore year, every single dime went into that bill. I remember walking across campus with again, state school, while ago, $3,000 in cash in my pocket, hoping I don't get robbed. I was like, "I will never do this again."
Following that experience, I said, "Let me get a job on campus." I became a resident assistant to help cut down on some of the expenses and I had an academic scholarship to help on the tuition and fee side of things. So I was able to finish undergrad with no debt. I did incur a little bit in grad school and so I'll happily share a little bit more about that maybe in our Q&A session with our guest, who I know.
Let's start transitioning to that segment of what we're going to talk about.
Kristy Parola:
Sure.
Vernon Williams:
Because this is somebody who is self-proclaiming or self letting us know that they too have a substantial amount of student loan debt. This is somebody who's not only the expert, but also the client as well, if you will.
Aaron Smith is a long time student loan expert and advocate with over a decade of experience in the intersection between higher education and financial technology. Aaron co-founded and served as the original executive director of Young Invincibles, one of the largest and most impactful youth organizations and policy nonprofits in the country, with a focus on engaging 18 to 34 year olds. Aaron started YI in 2019 while still a student at Georgetown law school, which is where he tells us the substantial student debt came from. Through his work at YI, Aaron worked with the Department of Education, the White House and Congress to make concrete fixes to higher education funding and the student loan process. Aaron has been featured in The New York Times, Washington Post, Wall Street Journal, Fox News, MSNBC, CNN, and now SHRM's Career Compass.
Aaron, welcome to the show, man.
Aaron Smith:
Thanks for having me.
Vernon Williams:
Let me get things kicked off with some context or a background question. Tell us a little bit more about why loans are here in the first place and why you believe the student debt is at a crisis point.
Aaron Smith:
Sure. To provide a little context, we are at about $1.7 trillion in student loans. It's bigger than credit card debt, which if you think about how much attention is paid on credit cards, it's just a massive amount of debt. Over 90% of that debt is held by the federal government. It's unlike other types of loans, it's the government is the primary lender. The big driver is the cost of college. The cost of college is going up faster than almost anything else in this country. You hear about the rising cost of healthcare. It's at that level of acceleration in terms of the cost of college. The end result of that is that people are taking on more and more debt.
You used to be able to go to a public university, either four year or two year at almost no cost. Our parents generation, you could go to CUNY in New York or a California state school at no cost and that has really changed. Even the state schools now are becoming expensive and in private schools, the increase we've seen there has been enormous. That's why we're seeing a rise in debt across all different levels of incomes in education. Obviously, I went to law school and that's where we see some of the fastest growth in student loan debt. That's where you see that six figure student loan debt amounts often coming from grad school. But we also see increasing student debt at lower income levels. Unfortunately, while there's a lot of attention paid to the people with the really high debt levels, it's often people with $5,000, $10,000, $20,000 in debt who are most at risk of falling behind on their loans.
Kristy Parola:
It's amazing because I know how I got into where I'm at with my student debt. Some of it was just me not making great decisions, not knowing where I was going to go, not knowing what I wanted to do and changing my major a million times. Maybe this is going to contribute to the next question I'm going to ask, but according to the US News, the average total student debt among recent college graduates who borrowed to pay for school exceeded $30,000. How is it possible for so many students to amass a debt of $30,000 or more in a lot of cases, as you were just mentioning?
Aaron Smith:
It comes down to the cost of college. Putting my old Young Invincibles hat on, states have disinvested in higher education, which has made tuition at public schools increase. Things like the Pell Grant, which are supposed to provide aid to lower income students, have not kept up with the cost of college and you got to make up that difference. People still believe in the value of college, they think it's what it takes to get them ahead and largely they're right. It's just if you're going to make up that difference, you're going to have to do it via loans.
What we see is that people are getting smarter about those loan decisions. You hear people go into a two year and then transferring into a four year, that's one way of keeping cost down. I think awareness around student loan debt is increasing, both among students and parents, and just what it means for your future. I think the point was made earlier, this is probably the first big financial decision that you will make in your life and you're being asked to understand something very complicated that is unlike anything else you've understood before. So it's not shocking to me that people take on more debt than might make sense or might not fully understand the implications of it.
We did some surveys of current students. Vast majority of current students do not know if they have federal or private loans, for example. They don't know what their monthly payment is going to be when they leave school. It dawns on you really quick, the impact when you leave school and you're like, "Oh, wow! My student loan payment is about the same as my rent." It's typically about six months after you graduate is when you have to start repaying your loan and that's when it really hits people, the sheer magnitude of the debt they have and how long it's going to take to repay it.
Kristy Parola:
Yeah and you hit the nail right on the head with that because I mean, I just recently experienced that. Where my dad was like, "All right, this is what you're going to owe. Get ready." I definitely can empathize with that situation. I want to swallow my pride a little bit, because I know that you mentioned a Pell Grant and up until this week, I had no idea what that was. Would you be able to explain what a Pell Grant is, who's eligible and how students go about applying for the Pell Grant?
Aaron Smith:
Sure. When you are considering going to college, you will fill out something called the FAFSA, which is a form that helps the government figure out basically what your need is based on your income. If you are eligible, and millions of people are eligible, the government will give you grant funds, so not a loan, to help cover the cost of college. The Pell Grant is an incredibly important program in the country and provides a pathway to a more affordable college education. But there are still so many young people who have never heard of the Pell Grant or who find it too complicated to actually fill out the paperwork and they need information from their parents. It could be a lot simpler and there have been efforts to make it simpler, but it's still a really important program. I know there are efforts to increase the size of the Pell Grant as well, so that again, people don't have to make up the difference with student loans.
Vernon Williams:
That's a fantastic response and thank you, Kristy for asking that Pell Grant question. Because I think you're right, Aaron, that a lot of people don't know about resources, particularly free resources, I guess, that are there, available to help people, which is going to my question. This comes from a place of, for me working in higher education institutions specifically, I was working with military communities. Within the first couple of years, people would just come in and almost sign documents without reading them or understanding them, as I think you were pointing out earlier. Then as time progressed, you start hearing a lot more questions coming. Like, "What does this mean? How long do I have these benefits? What am I going to end up paying back? What's my out of pocket expenses?" a lot of that stuff. My question is, when students and families receive their financial aid package from their school, what type of things should they be paying attention to and what are some red flags?
Aaron Smith:
I think that they should look obviously very closely at what the estimated amount of debt is going to be. One of the things that I think people underestimate is the cost of living for college can be substantial. If you're getting housing, books, all the things that allow you to go to college, not just the tuition, that's a huge source of cost and debt for folks. So understanding how you are going to cover those costs and if it means that you have to find savings, being really thoughtful about that piece of it, I think is really important.
Then yeah, it comes down to that mix of grant aid versus loans. Generally speaking, federal student loans are better than private student loans. Not always, but federal student loans come with a lot of protections. If you become disabled, if you lose your job, you can be eligible for a $0 dollar payment. You can be eligible for programs that will forgive your student debt if you have a certain occupation, like you're a teacher, for example. Those are not available if you take on private loans. Sometimes people have to take on private loans because the federal loans doesn't cover everything that they're trying to do. But that's another thing just to look at, is how much you're eligible for in terms of the federal loans.
Vernon Williams:
I'm glad you touched on loans, Aaron, because this is where I was saying in the earlier comments, that in grad school I did have to take out some loans because I was planning to study abroad. As you mentioned, it was six months to the day. I don't remember exactly what day I graduated on, but I remember receiving my notice in the mail six months to the day after graduation that said, "Congratulations on your accomplishments. Your payments start." It was like, "How did they know?"
We touched on this a little bit in our previous episode around financial literacy about student loans and subsidized and unsubsidized. Can you elaborate a little bit more on those terms and what's the difference between the two?
Aaron Smith:
Yeah, and I also took on grad school loans. Subsidized loans versus unsubsidized loans, grad plus loans, which maybe you took out is another term that people should be aware of. The subsidized versus unsubsidized is basically talking about whether you accrue interest while you're in school. One of the nice things about being in college when you have debt, is generally speaking, you don't have to make payments during your time in school. However, what people may be surprised to learn is that some types of loans, you'll actually be accruing interest while you're in school and studying and enjoying your time there. You'll come out with more debt than even than when you started. Subsidized loans do more to cover that interest afterwards.
There are sometimes differences in terms of the interest rates, in terms of repayment plans. Graduate plus loans is another category. They tend to have higher interest. My loans were over 7.5%. Many of these plans, people have no idea what they mean or these types of loans. This is one of the things that Savi does, is we help with our software, people identify what kind of loans they have and then what that means in terms of their repayment plans that are available to them.
Vernon Williams:
I'm glad you mentioned the 7%, because I think some of these numbers are, as you mentioned, confusing to people and it's hard to keep them straight, even for me and somebody who's not necessarily in that role anymore because I'm looking at what my auto loan would be, I'm looking at my house loan. I'm looking at my car loan, I'm looking at my bank loan and it's like, "Oh, my gosh. What is it that I should be shooting for?" Last question before I kick things back over to Kristy, can you give us a sense of what a good student interest rate or loan rate is? And if you know, is there a difference between the private sector and the public sector for what these loans might be, what they might cost?
Aaron Smith:
Yeah, the federal government sets the interest rates on federal loans. For example, the current interest rate for a direct unsubsidized loan for an undergrad is 2.75%. That's a very good interest rate. For graduate students it's higher, it's 4.3%. Again, that's set by the federal government. It can change over time, but generally speaking, it's a fixed rate, so once you take on that loan, you're going to have a 2.75% interest rate for the rest of the time. Grad plus, which is the other one I mentioned, another federal loan, those tend to have much higher interest rates, over 7%.
Private loans will typically have a somewhat higher interest rate. I mean, we see private loans with anywhere from 5% to over 10%. Private loans often have a co-signer, so they may want your parent to sign on to the loan with you. Again, it's complicated. There may be situations where you can get a lower interest rate with one kind of loan, but the protections and benefits of the government loan may be really important as well. People just really have to do their homework before they take on this debt.
Kristy Parola:
Sure. When you're trying to figure out how you're going to pay, and what's your strategy afterwards, do you know of any repayment plans or income driven repayment plans and what should somebody go to expect when trying to figure out what's the best strategy for them?
Aaron Smith:
Yeah, it's really important for people to understand that when you come out of school, you are assigned a servicer. This could be a Navient or fed loan servicing. They're the ones who are going to expect you to pay them every month. Your standard plan is going to be a 10 year repayment plan. They're going to take your loan, they're going to apply the interest and you're going to have a set payment over 10 years. Then after that 10 years you'll have paid off your loan.
The government offers programs that allow you to limit your monthly payment based on your income. As an example, let's say I come out of college and I don't have a job right away, so I have zero income. I have $50,000 of student loans and my normal payment would be about $1,000 dollars a month. I could sign up for an income driven plan and lower my payment as low as $0 dollars a month because my income is zero. When I sign up, that payment will be good for one year, so for one year I have a $0 dollar payment. Now that's not free money. I mean, you will have to pay back that loan, you may accrue interest.
The big advantage of income based plans is the government will actually subsidize some of that interest for you. It's not quite the same as just extending the loan, but there are trade offs there. For people whose income goes down or they're having trouble making their payments generally, or on other things, income based repayment, think of it almost like insurance policy to make sure that you are always able to find a payment that you can afford. There are actually lots of different types of income driven payment plans. There's plans called ICR and Repay and Pay. Again, Savi helps you sort through all those and figure out which plan you're even eligible for, which plan makes the most sense for you.
But it is complicated and I would add, most of those programs require you to actually enroll every year. When I first came out of school, I had to fill out that paperwork by hand and then fax it in to my servicer. I just remember feeling like this is so old school, I don't have to fax anything and I got to fax my student loan paperwork. I would keep a big file folder of all my student loan papers and then the next year, I'd try to remember where it was so I could file again. But about half of people actually fail to re-certify, put in their paperwork every year. They end up dropping out of the program, which means their payments go back up. The enrollment process, as well is extremely difficult and can be frustrating for people. Again, it's one of the reasons why we started Savi.
Kristy Parola:
Sure, and I know you mentioned earlier the difference of how you accrue interest in these subsidy plans. This is something I learned the hard way just recently, is understanding the difference between paying on the principle of the loan if you're going to make an extra payment, versus paying on the interest and not understanding that you're really doing one over the other. I mean, I can obviously probably further explain it, but probably not as poetically as you can. If you could just explain that for our listeners too, because I think nobody really explains the difference for you on that when you're coming into this.
Aaron Smith:
Yeah, when you are making payments, generally you are making a combination of the principle, which means the underlying loan amount and the interest that accrues. The 5% or whatever amount on top of that underlying loan amount. People can pay down their loans faster, but it's important to make sure that your payments are sufficient to start paying down the principle, because if you're just paying off the interest, for example, you're never cutting away at that underlying student loan and you still will have that student loan, which is still able to accrue interest over time. It is a complicated concept for people, a lot of people for whom they never took out a loan before. But understanding that you really need to have a plan so that you pay back both the principle and interest over the life of the loan, so that loan doesn't get away from you.
Sometimes what we see is people, for example, may get behind on their student loans or go into default on their student loans and that interest starts to accrue and it can actually capitalize. Meaning the interest can get put on top of your principle, so now you end up owing more even than when you started. There was some research and this problem disproportionately hurts different communities. There was some research that showed that African American graduates with debt, for example, often owed more on their student loans after five or 10 years after they graduated than when they graduated. That's exactly because of the problem you said, which is their interest is accruing and they're not paying it down fast enough and the amount of the debt starts to balloon.
Kristy Parola:
Sure. When we were coming into this time with COVID and the US Department of Education has extended the pause in federal student loan payments, what does this mean and when will students need to restart making payments? And what's the advantage of continuing your monthly payment now, even though the payments are paused?
Aaron Smith:
Yeah, you're right. The federal government put a pause on student loan payments, federal student loan payments since March of 2020 and that pause lasts until the end of September of this year. I, for example, have not been making my student loan payments because they've been paused and I'm not accruing any interest, which is one of the important things that they did. Means I don't have to make the payment and the interest doesn't keep building up. That will end, millions of people are going to have to start repaying their student loans this fall. We're very concerned about people being aware of that shift and being ready to start repaying again. I think there could be a lot of challenges with that.
Some people have decided to continue paying down during the pandemic because as you alluded to, it's a way to start to pay down the principle of your loan and actually get that loan amount lower while you're not accruing any interest. If you can afford to make the payments, certainly that can make sense. The vast majority of people are not making payments right now for obvious reasons. If you don't have to, you can spend the money on other things. But there are advantages.
The other thing we try to point out to people is, let's say you lost your job or your hours got cut as a result of the pandemic. Again, these income based repayment programs can be really important. It means that if you put in an application, you can actually make sure that for example, a $0 dollar payment gets extended even beyond that payment pause. If you're really worried about starting repaying again in October, income driven repayment is one approach that you can take to help get that payment lowered when a lot of people are still suffering economically.
Kristy Parola:
That's really good to know.
Vernon Williams:
Sticking with that line of questioning, are there other federal laws or policies that students and emerging professionals should consider when it comes to student loans?
Aaron Smith:
Yeah, absolutely. There are a type of student loan programs that provide forgiveness on your federal student loans. One big one is called public service loan forgiveness. This is anyone who works for a nonprofit, 501(c)(3), works for the government, like a teacher, works oftentimes in nonprofit healthcare settings, like a social worker or a nurse, they might be eligible to have their federal loans forgiven after 10 years, which is a huge program. It means that any balance that's remaining after you make the 10 years of payments. The way it works is you sign up for an income based repayment plan and you make the 10 years of payments while you're working for one of these eligible employers and you will have the remainder forgiven. If you had $100,000 dollars left over, you will have it forgiven tax free. Hugely important benefit for people, particularly in the public sector.
At Savi, we work with thousands of teachers, for example. There's also a program called teacher loan forgiveness, which will forgive your student loans after only five years, although a smaller amount. But there's a lot of unique, specific student loan forgiveness programs that people do not know about. One of the things the government just did was if you are on an income based repayment plan for a certain period of time, often 20 years, after that 20 years, the government plans will actually forgive the remainder of your loans. Similar to public service loan forgiveness, they will forgive it even if you work in the private sector. The downside traditionally has been you would have to pay taxes on that. If you had $100,000 dollars in forgiveness, you might have to pay taxes as if that was $100,000 dollars in income, which is a big challenge for people. They just recently changed the law, however, so it's now tax free.
Vernon Williams:
Nice.
Aaron Smith:
Even that form of forgiveness is now a much better deal for people. That's really important for people for profit companies and people who generally might have lower or moderate incomes and might be on the income based plan for a long time, is they can get that forgiveness in that way as well.
There are other changes for employers. There was a brand new tax break so employers can start to actually contribute toward your employees' student loans, and it's tax free. Employers are starting to do this where they say, "I'll pay $100 dollars a month to help you pay down your student loans." And now it's treated as tax free, both for you and the employee. That's a huge, huge new benefit. That tax break lasts for five years and employers are just starting to really expand that benefit.
Vernon Williams:
I'm sure that's a way to attract new talent or better talent to organizations, if that's a benefit that you're offering to your employees. That sounds fantastic.
Aaron Smith:
Exactly and for traditionally employer benefits have not been as oriented toward younger workers. This is a kind of benefit that I think really appeals to young workers or just workers period, with student debt. It's a real differentiator for the company, increases retention. I think there's a lot of value, but obviously the tax break makes a big difference for employers that are trying to figure out how it makes financial sense.
Vernon Williams:
My next question, Aaron, is one that is very near and dear to my heart. As I started working, I had an MBA, 24 years old, but I was working at an affluent college and so the students were all driving much nicer cars than the broke down car that I was driving at the time. I then decide I got to ball it out, I've just graduated. I got to do something to show that I'm doing all right. So I went to Best Buy to get a TV and based on my income and my debt that I had at the time, my student loan debt that I had at time, they would only offer me $800 or $900 bucks of credit. So I got the biggest, bulkiest TV that weighed 700 pounds. It wasn't pretty. My question, how do student loans impact your credit score and your ability to borrow money for things like a house, or a car?
Kristy Parola:
Or a big bulky TV?
Vernon Williams:
Or a big bulky TV?
Aaron Smith:
Yeah, or a big TV. It has a huge impact. Student loans, for many people are one of their biggest forms of debt. You think about credit card debt, auto loans, student loans is bigger than all those. The big implications is if you fall behind on your student loans, if you get into default on your student loans and a huge portion, over 10% of student loan borrowers are behind on their student loans, or in some kind of delinquent status, that can have a direct negative impact on your credit score. You mentioned your debt to income ratio. When a mortgage lender is looking at you for a house, and we see this increasingly, they're factoring in your student loan payments, and that is having a big impact on people's debt to income ratios.
One of the interesting things that we've seen on the policy side is they changed the rules so you can now enroll in an income based plan. Let's say your student loan payment goes from $1,000 dollars a month down to $500 dollars a month. They will actually start to take that into account and improve your debt to income ratio as a result. Now your payments went down $500 dollars, your debt to income ratio is going to improve and you'll actually be more able to afford a house, or more able to afford a bigger mortgage as a result. Not only can have an impact, getting smart on your student loans can have a positive impact on your ability to buy a house, for example. It's one of the really important reasons why people need to stay current on their student loans and stay on top of their student loans, because it can have a meaningful impact on credit.
Kristy Parola:
Going into unable to pay your student loans, I'm hoping nobody has this issue, but if you ever happen to completely stop paying your student loans, what would you expect is going to happen if you're unable to continue making those payments? I've heard the terms deferments and forebearances, how do those factor in?
Aaron Smith:
It's really important to make your student loan payments. Again, the government is the lender, so the government has a lot of ways to get that money.
Vernon Williams:
I think you're being nice here. I think you're being polite.
Aaron Smith:
They are aggressive. To give some examples, we work with employees who are having their wages garnished. The government can come in and take 15% of your paycheck to pay down your student loan. We just started a partnership with AARP for their members. One of the reasons why is we see now the government coming in and taking social security checks from people for their student loans. They can take your tax refund. All those things happen when you fall into default on your student loans, which generally means you haven't made a payment for 270 days, and you get transferred from your servicer over to a debt collector. It becomes very difficult. There are ways to get out of default. We help people get out of default all the time, but it is more difficult and you really want to avoid that.
Again, the government provides all kinds of supports to help people who are maybe undergoing financial strains. I mentioned income driven repayment that can lower your payment as low as $0 dollars. We actually did a program, we launched a site called crisishelpbysavi.com, where people who lost their job could come on and file an income driven or payment application and get a $0 dollar payment, all for free through the site because that is a constituency we really want to help, particularly during the pandemic.
There are things like deferments and forbearance, where you can basically pause your student loans for various reasons. Sometimes you'll accrue interest during those, so there's a downside to it. But again generally speaking, better than going into default. Yeah, there are options for people and you can ask your servicer who you pay for information about options if you don't think you can afford your payment. You can go to the government, they have information. Obviously Savi has tools and resources that can help people in those situations. But particularly right now, with all the challenges of the pandemic, it's important for people to have all the information they can on their options.
Vernon Williams:
Aaron, we are in the home stretch, just a few more questions. I want to take a quick pause for any of our listeners who are interested in the professional development credit that can be earned by listening to this episode. The code that you are looking for is 22-CP5UD. Again, that's the number two, the number two, dash, C as in Charlie, P as in Papa, the number five, U as in uniform and D as in Delta.
All right, next question. We've talked a lot about the various repayment issues or repayment methods that one can use. But to prevent us from being in that situation and I think I maybe gave one of those examples for me, I chose to be a resident assistant. But what are some of the other things that students can do to minimize the amount of student loans that they need for college?
Aaron Smith:
Yeah, there's a few different ways. Obviously, choosing the school that you go to, and the type of degree you get is maybe the most important first step. There is no one size fits all approach to education. There's people who are incredibly successful, who go all different routes from community college, to public universities, to private universities. Just, I think being very smart, being very thoughtful about what you're looking to achieve and what the cost implications of that are and having a plan for that is step one.
Once you've decided on a path, there are scholarships that are available, there's financial aid, you should do the FAFSA, you should figure out what you're eligible for from the government. Sometimes schools have additional aid that they can provide. You mentioned there's things like work study where you can make some money that can help cover your costs. Those are really important.
I think a lot about grad school, one of the fastest areas of growth in student debt is people taking on the huge amounts of debt for grad school. You think about how expensive grad school is, even $50,000 dollars a year plus for grad school. That's where you start to see those really high debt levels. It is true that people increasingly feel like they need that grad school to get ahead. But just being really thoughtful about that path. For example, I'm a big fan of doing internships or taking jobs that give you a sense, if you want to be a lawyer, get a sense of what it means to be a lawyer before you spend $100,000 plus on a law degree. I say that as someone who got a law degree and never practiced law, but has the debt. Just trying to be really thoughtful about that.
Then on the flip side, understanding that while public service can often pay less, like working in the government, working for a college or a hospital sometimes can pay less, there is this forgiveness component. So take that into account when you're thinking about what kind of path, is there forgiveness? Are there benefits to the type of employer that you might work for that would make going to get that extra education make sense financially?
Kristy Parola:
As we're starting to wrap up here, I want to give you the opportunity, Aaron, to give yourself and Savi a little plug. I wanted to see if you can say a little bit more about what Savi does and what projects, work initiatives you're currently working on.
Aaron Smith:
Sure, Savi is a student loan benefit startup. We offer a comprehensive platform to employers so that they can offer a student loan benefit to all of their employees. It starts with that education piece. Our platform lets people enter their loan information, enter information about themselves and see all their options all for free. Then we'll actually help you with all the paperwork, we've digitized the whole process. You can talk to an expert one-on-one. If your employer is interested in the employer contribution or offering student loan re-fi, we have that as well. It really is that comprehensive student loan benefit solution. And for many employers, it's the first time they've ever offered a student loan benefit and they find that it's one of the most exciting new benefits. It's one of the benefits that gets the most engagement from employees at all ages and all levels in the company. You'd be surprised how many people in your company have student loan debt and not just assume that it's the recent college grads. Really is affecting everyone at this point.
That's a little bit how we work. We believe really strongly in the education piece. Oftentimes, Savi is part of a broader financial wellness push at a company. We are the financial wellness solution around student loans. We'll do webinars and workshops and provide all kinds of educational content so that people can have help in figuring out how to repay, so that they can figure out smart ways to avoid getting into debt in the first place. Yeah, we're your advocate for you through that process so if the government changes the rules or adds a new program, we're there to alert you. As an HR professional, we're there to alert you about how those changes could impact your employees. We help keep our employers well informed about what's happening as well.
Kristy Parola:
Awesome. As we're closing out here today, we are going to ask if you have any final thoughts and pieces of advice that you like to give to students or emerging professionals, or really anybody who's going to be listening to this podcast.
Aaron Smith:
The final thing I'd just say is this is really a unique moment on student loans with payments being paused for over a year and now set to resume this fall. We've never had anything like that before. If you just think about the employees out there who maybe have put aside that student loan payment, haven't been making payments, been moving on to other things, who all of a sudden are going to have to start paying $500 dollars a month, $1,000 dollars a month, starting in October, I think it's really important for employers to try to get ahead of that and to try to inform and alert their employees about what's about to happen. Because we don't want anyone to fall into default, we don't want anyone to fall behind. Particularly when we know there are options available that can help them get on track with their student loans. Just really I want to emphasize the urgency of helping employees figure out their student loans now when we have this pause and before payments resume this fall.
Vernon Williams:
Aaron, thank you so much for joining us and providing us with tips, knowledge, and resources to combat student debt. I consider myself to be relatively knowledgeable when it comes to the subject matter, but even today, I'm still walking away with some nuggets and things that I did not know.
Aaron Smith:
Thanks for having me. Yeah, I really enjoyed it.
Kristy Parola:
Thanks, Aaron. With that, we're going to bring this episode of Career Compass to a close. We'd like to thank SHRM and the SHRM Foundation for providing us with this platform. But most importantly, we'd like to thank all of you for joining us and hope you stay with us throughout the season as we discuss more topics like this episode.
Vernon Williams:
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Kristy Parola:
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Vernon Williams:
Lastly, are you looking for more work or career related podcasts? Check out all things work and honest HR at shrm.org/podcast. Thank you again for listening and we'll catch you on the next episode of Career Compass.