STUDENT LOAN/ HSA

Pension Maxima Investment Advisory

June 11, 2020

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INTRODUCTION

Speaker: Bonnie Yam, CFA, CFP, EA, CEPA, CVA

Principal of Pension Maxima

Tel : 914-574-5023

Email: bonnie@pensionmaxima.com

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AGENDA

1. Health and Financial Stress and Impact on Workplace Productivity

2. Student Debt Repayment Strategies

2 CARES Act update on Student Debt Repayment

3. HSA Review and Benefits

4. CARES Act update on HSA

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IMPACT: PRODUCTIVITY & ABILITY TO RETIRE

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Willis Towers Watson 2019/2020 Global Benefits Attitudes Survey

WORKERS ARE FINANCIALLY STRESSED

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Charles Schwab 2019 Modern Wealth Survey

41% can’t cover $1000 unexpected expense

30% has credit card debt higher than savings account total

4 in 10 believe money concerns prevent them from doing their best work

Willis Towers Watson 2019/2020 Global Benefits Attitudes Survey

PAYCHECK TO PAYCHECKALL GROUPS HAVE ISSUES

74%

under $50,000

1 in 3

between $50,000 to $100,000

1 in 4

> $150,000

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https://www.marketwatch.com/story/a-shocking-number-of-americans-are-living-paycheck-to-paycheck-2020-01-07

STUDENT DEBT

STUDENT DEBT BY THE NUMBERS

$1.52 Trillion, second after mortgage

Affecting 44 Million Americans &1/3 of plan participants

86% of employees said they’d stay with a

company for at least 5 years if their employer

helped pay down their student loan

WHO CARRIES THE DEBT?

4 in 10 adults under 30 have student debt

Av Graduate Student Debt = $37,000

Av Years to Pay off Bachelor Degree = 19.7 years

Americans 60* and older owe a total $66.7 billion in student debt, with an average of about $23,600

*Mulherem, Kaitlin, “Age 60, Nearing Retirement … and Still Stuck with Student Debt”, TIME Jan 5, 2017

STUDENT LOANS

% of Borrowers who owe more than $100,000 � Maryland (10.3%)

� Georgia (9.4%)

� NY (8.1%)

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Student Loan Planner: Student Debt Statistics in 2020: A look at the numbers Current Student Loan Interest and How They Work

Student Loan Default Rate: 11.1% Implication on Credit Score, Employment etc…

Women holds 2/3 of nation’s student debt, took 2 more years to repay, more likely to default- Lower income, More going to college, Childcare

POLITICAL VIEWS ON STUDENT DEBT

Not a priority

Funding diverted to help economy recover

LOAN REPAYMENT STRATEGIES

STUDENT LOAN REPAYMENT STRATEGIES1. If you have good income, Pay MORE

2. If you have cashflow issue, Switch to Income Driven Repayment Plans (Govt Loans)� Income-Based Repayment (IBR)

� Pay As you Ear (PAYE)

� Revised Pay as You Earn (REPAYE)

� Income-Contingent Repayment (ICR)

Loan is forgiven after 20 years

3. CARES ACT 2020 - deadline 9/30/2020� No interest accumulated, but principal still intact.

� FICO Score not affected

� Only govt loans which includes Parent Plus Loans. Private Loans originated by school and banks do not qualify.

� Continue payment All money goes to reduce principal

4. Loan Forgiveness Program� Tap on Public Service Loan Program or Non Profit

5. Refinance Your Loan to get a lower interest rate

https://www.savingforcollege.com/article/do-parent-loans-qualify-for-the-coronavirus-payment-pause

HOW TO GET YOUR LOANS FORGIVEN

Three Paths (None Easy!)

1. Public Service Loan Forgiveness Program (PSLF) – Federal Loans only� Full time employee and make 10 years of on-time payment

� Job in Fed/State/Local/Tribal level

� Non Profit 501(c)(3) or non tax exempt

� Full time Americorps and Peace Corps volunteers

Special Forgiveness Program:� Teacher ($5,000 to $17,500/5 yrs in qualifying schools)

� Nurses (Nurse Corp, up to 85%, 60%/2 yrs in underserved areas)

� Doctors (Navy: $275,000/ 8 years, $50,000/2 yrs in approved site)

� Lawyers (Dept of Justice: $60,000/3 yrs)

� Military (up to $50,000)

https://www.nerdwallet.com/article/loans/student-loans/student-loan-forgiveness

HOW TO GET YOUR LOANS FORGIVEN

2. Loan Forgiveness for Income-Based Repayment Plans – Federal Loans Only20 to 25 years of On-Time Payment

� Income-based Repayment Plan (IBR)

� Income Contingent Repayment Plan (ICR)

� Pay As You Earn Repayment Plan (PAYE)

� Revised Pay As You Earn Repayment Plan (REPAYE)

3. Student Loan Discharge – Federal and Private, awarded by Judge only� Death/Disability

� Victim of identity theft, False certification or Unauthorized Payment

� School is closed while you are enrolled

� Bankruptcy (expensive process and very rare)

REFINANCING STRATEGIES

LOAN CONSOLIDATION/REFINANCING

What you need first?1. Steady Job2. Good Credit Score – Best is 780 or higher (or you will need a co-signer)

3. Debt Income Ratio <35%. Some will take < 50%

WHEN TO CONSOLIDATE AND WHEN NOT TO Why Consolidate?1. Negotiate for Lower Interest Rate

2. Streamline payments

� One payment instead of multiple payments

Other Considerations:

You might not want to consolidate or refinance these loans:

1. Federal Loans:

� Income Driven Loans are eligible for forgiveness after 20 -25 years

� Other Loan Forgiveness Programs

� Federal loans normally get Better Rates and Terms as cp to Private Loans

� No need for Co-signer

� CARES ACT: No interest until 9/30/2020 on Govt Loans. Wait to finance because can’t get better than 0%

2. High Interest Loans:

� You can not single out high interest loan to pay down principal first after consolidation.

WHAT TO LOOK FOR IN REFINANCING?1. Application fee

2. Interest Rate (Fixed, Variable), lower fees with co-signer?

3. Term (10, 20, 30 years?)

4. Min/Max Loan Amount

5. Late Fees, pre-payment penalty

6. Options if facing hardship: Deferment (interest continues to calculate)

Forbearance (interest free)

7. Other perks such as auto-pay discount (ex. 0.25%)

LOAN REFINANCING LENDERSCompany Fees Term Other Perks

Splash Financial No Application, origination or prepayment fees

From 5 to 25 years No Maximum Loan Amount

Laurel Road No application, origination or prepayment fees

5, 7, 10, 15, 20 years Temporary forbearance

Earnest No application Fees & No Prepayment Penalties

Customize repayment term Option to skip one payment every 12 months

LendKey No origination Fee 5 to 20 years 18 Month forbearance (int still calc)

SoFi No application or origination fee, No Prepayment Penalties

5 to 20 years Offers unemployment protectionCareer Coaches and Wealth Advisors

Figure No Prepayment or origination fees

5 to 20 years Autopay Discount of .25 APR

12 Months Forbearance option

Discover No Prepayment penalty 10 to 20 years Autopay Discount of .25%

Defer options: Back to School, Public Service or Health Professions or Military Duty (no interest)

REFINANCING ONLINE MARKET PLACE

Why?

1. One Simple Form

2. Will not affect your score

3. Vetted lenders in Real Time

Credible (DISCOVER): FIND YOUR RATE

COMPANY TO HELP?Benefit: Much lower turnover rate

Source: Tuition.io

SMALL CONTRIBUTIONS CAN MAKE HUGE DIFFERENCE

Employer

Contribution

Lifetime Cost of

Student Debt

Years Until

Pay Off

Savings on

Lifetime Cost

$0/month$0/total

$32,800 15 $0

$50/month$6,000 total

$28,200 10 $10,600

$100/month$9,300

$26,000 7.75 $16,100

Source: Fidelity Student Debt Program Flyer

COMPANY EXAMPLES (DOUBLING FROM 4% TO 8% IN 1 YR, EXPECT TO HIT 23% QUICKLY)

Aetna: - Full-time employees, match up to $2,000 per year, with a $10,000 lifetime maximum

- Part-time employees, match up to $1,000 per year, with a $5,000 lifetime maximum

Common Bond: � $1,200 a year until loan is paid off

Estee Lauder: � $100/mth with a lifetime maximum of $10,000

Fidelity Investments: � $2,000 per year with a lifetime maximum of $10,000

New York Life: � $170 per month with a lifetime maximum of $10,200 over 5 years

Nvidia (Technology): � Recent graduates (within the last three years) can apply for reimbursement of $6,000 each year, up to $30,000.

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https://www.nerdwallet.com/article/loans/student-loans/employer-student-loan-repayment

HOW DO YOU STRUCTURE THE BENEFIT?SIMILAR TO 401(K)

25

Eligibility

(6 months)Full

Time/Part Time

Payment

Direct Payment to Loan

Match

($ or %)Lifetime Maximum

STUDENT BENEFIT DESIGNSDirect Benefit Choice Retirement

Description Direct Payment towards Employee’s Student Loan

Leverage Existing Benefits to fund student debt repayment: PTO, Wellness Points, Bonus

Offer a retirement contribution based on student debt payments

Value to Employee Employee saves repayment time and money on loans

Employee chooses how to use benefit dollars that works best for them

Employee earns money toward retirement by paying off student loans today

Plan Changes Not Required Not Required Required

Tax Implication(End 12/31/2020 unless extended)

CARES ACT 2020: Tax deductible to Employer

CARES Act 2020: No tax on income to employees

401(k) Contribution; tax advantaged for both employer and employees

Regulatory Movt Proposed HR 1043 extends tax advantaged debt repayment up to $5,250*including tuition assistance.

Proposed HR 1043 could apply here in certain circumstances

IRS considering Revenue Ruling to extend Private Letter Ruling issued to Abbott Labs

* Does not include dependent loans.Source: Fidelity Student Debt Program Flyerhttps://www.brighthorizons.com/text-pages/covid19-cares-act

HEALTH SAVING ACCOUNTS (HSA)

HEALTH SAVINGS ACCOUNT

Why is it important?

As population continues to age, healthcare expenses will continue to grow

How can you make it affordable?

Increase affordability by providing flexibility and tax advantaged savings

HEALTHCARE COSTS CONTINUE TO GROW

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Healthcare costs expected to hit close to 20% of GDP!!!

HEALTHCARE EXPENSES CONTINUE TO GROW

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Premium expense continue to grow for employer and employees

HDHP TO INCREASE AFFORDABILITYHigh Deductible Health Plan approximately 10% lower in total premium costs

HEALTH SAVINGS ACCOUNT

Eligibility:

You are enrolled in a High Deductible Plan

Not covered by any other medical plan such as from a spouse, not enrolled in Medicare, Tricare or claimed as dependent on someone’s tax return

Limits for 2020

$3,550 for self only

$7,100 for families

Catch for Age 55 and above: $1000

HEALTH SAVINGS ACCOUNT (HSA)Advantages: - Cashflow to pay for medical costs- Triple tax free to provide for additional retirement savings

ATTRACTIVE BENEFITS OF HSA

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Triple Tax Free • Pre-tax Contribution• Tax Free Earnings• Tax Free qualified withdrawals

Balance gets carried forward

Portable Invested

Note: 20% penalty for non-qualified withdrawals before 65. After 65, you can withdraw the fund for anything.

HSA ASSETS CONTINUE TO BOOM

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By the end of 2021, HSA market will approach $88 Billion in assets with over 30 million accounts.

HIGHER PURCHASING POWER

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HSA ACCOUNTHow can you use your HSA Money?� Qualified medical expense including dental and vision care (no calendar limitation)

� Deductibles

� You can’t use it for insurance premiums (exception, if you lose your job during COVID-19)

� No OTC medicine (exception COVID-19)

If you are 65 or older� You can use it to pay for Medicare Parts A, B, D but not Medigap supplements

� You can withdraw money from HSA for general expenses. No penalty, but tax still applies.

Early Withdrawal Penalty� Before 65, 20% penalty

GUIDE TO COVID-19 AND HSA ACCOUNTSMARCH 2020

3/11: COVID testing & treatment carve-out� HSA qualified plans may cover COVID Testing and treatment pre-deductible

(normally doesn’t cover treatment until you have reached deductible. Now treated as “Preventive Care”.)

3/18: H.R. 6201 FFCRA� COVID testing must be 100% covered

3/24: HSA contribution deadline for 2019� extended until July 15, 2020, similar to tax filing deadline from 4/15/2020

3/27: H.R. 748 CARES Act� Expanded HSA-eligible items to include OTC medical products without a prescription (ex. Tylenol, cough medicine, allergy medications)

� Telemedicine temporary eligible till 12/31/2021 (two years)

� Mental Healthcare

� Feminine hygiene products

APRIL 2020

4/23: Excess HSA contributions� Can be withdrawn by 7/15/2020 to avoid excise tax of 6%

Note: Respirators and face masks are not currently listed as qualified medical expenses unless doctor provides a “Letter of Medical Necessity” for IRS.

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THE END

Thank you for attending. We’re here to help.

Interested in more information? Want help with Student Debt or HSA?

Contact us at: Bonnie@pensionmaxima.cm

Tel: 914-574-5023

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