Should I Open an HSA?

July 2, 2018

Few things have the potential to wreck your financial wellness quite like your physical health. A lingering ailment or a sudden injury can throw a wrench into your finances with enough force to ripple into the ensuing decades. It’s wise to carefully consider the various protective measures available to both reduce the worry of something happening, and soften the blow.

What is an HSA?

Traditional Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) plans cover most expenses with a percentage based co-pay and relatively low deductibles. The Health Savings Account (HSA) allows for a much more individual approach to health care. With an HSA, you can make pre-tax contributions into a special savings account and simultaneously lower your tax burden.

Not to be confused with a Flexible Spending Account (which can only be established by your employer), you can open a Health Savings Account through your employer or as an individual through your bank.

The primary requirement for an HSA is to be enrolled in a High Deductible Healthcare plan (HDHP). These plans come with a minimum/maximum deductible of $1,300/$6,500 for individuals, and $2,600/$13,100 for families. Other requirements include that you not be covered under any other healthcare program and not be claimed as a dependent on anyone else’s taxes.

How to take advantage of the HSA

Think of it as an emergency fund specifically for your medical expenses. By assuming greater responsibility for covering your own medical expenses, you can significantly lower your monthly premium and can instead put that tax-free money into an HSA.

Obviously, if a medical issue arises, you’ll have to pay the entirety of your deductible before your HDHP provider will step in to assist. This is where your HSA can come in handy to help supplement your out-of-pocket expenses.

While there is a limit to your annual contribution ($3,400 for self-coverage and $6,750 for families), the money in your HSA can be rolled over year after year, thus building a more substantial safety net for you and your family. If you’re currently healthy and are willing to wager against the possibility of a serious accident, the HSA is a great option for incredibly affordable healthcare.

Downsides of HSAs

There are, of course, a few downsides to both the HDHP and the HSA if you were to have a serious accident or suddenly become ill. Unless you’re a few years into your account and have diligently built up your savings, it can be quite difficult to meet the high deductibles even with your HSA.

Another common drawback for HSAs is that you may be reluctant to seek healthcare when you need it, because you don’t want to dip into your savings. That’s the same thing as shying away from your emergency fund when you have an emergency. The HSA is intended as a buffer and shouldn’t discourage you from getting help.

Misconceptions of HSAs

HSAs also have common misconceptions about their practicality that are certainly worth noting. While there are substantial tax benefits associated with HSAs, some people are tempted to use HSAs as a generic emergency fund. Since early withdraws and fees on nonmedical expenses are taxed 20% (ouch!), it’s probably best to avoid this method at all costs.

Furthermore, HSAs can lure customers with their investment potential in mutual funds and stocks. Unfortunately, their ability to be invested doesn’t necessarily translate to a high investment return. Experts advise customers to think carefully before signing up for a high deductible health plan, especially regarding their investment capabilities.

Run the numbers, trust your gut

At the end of the day, health care is all about running the numbers and weighing them against your peace of mind. “How much is enough coverage for the next year and how much is it going to cost me?”

HDHPs and HSAs are a good form of insurance if you’re young and healthy. The tax advantages and investment capabilities of an HSA and HDHP should in no way influence your decision. Your decisions should be based off the amount of premiums you’ll save, the deductible proposed for a comparable PPO plan and the out of pocket spending caps associated with each policy. Basically…do your research, watch your health and plan accordingly. Simple enough, right?

See How the 50/20/30 Budget Could Help With an HSA

Direct Costs of Replacing Employees

A talented employee exiting your company costs you money. Estimates of how much employee turnover costs can vary by industry and employee salary. A study by Employee Benefit News estimates the direct cost to hire and train a replacement employee equal or exceed 33% of a worker’s annual salary ($15,000 for a worker earning a median salary of $45,000). Cost estimates are based on calculatable expenses like these:

HR exit interview & paperwork
Benefit payouts owed to the employee
Job advertising, new candidate screening & interviewing
Employee onboarding costs
On-the-job training & supervision

You can track the expenses of your company’s employee turnover using this online calculator, or create a spreadsheet to determine how actual costs add up to affect your bottom line.

Full Impact of Employee Loss

Josh Bersin, a human resource researcher, writing for LinkedIn, refers to employees as a business’s “appreciating assets.” Good employees grow in value as they learn systems, understand products and integrate into their teams. When one of these valuable employees leaves, the business loses more than just the cost of hiring and training a replacement. Bersin cites these additional factors contributing to the total cost of losing a productive employee:

Lost investment: A company typically spends 10 to 20% of an employee’s salary for training over two to three years.
Lost productivity: A new employee takes one to two years to reach the level of an exiting employee. Supervision by other team members also distracts those supervisors from their work—and lowers the team’s collective productivity.
Lost engagement: Other team members take note of employee turnover, ask “why?” and may disengage.
Less responsive, less effective customer service: New employees are less adept at solving customer problems satisfactorily.

According to Bersin, studies show the total cost of an employee’s loss may range from tens of thousands of dollars to 1.5 to 2 times that employee’s annual salary.

Strategies to Slow Employee Turnover Rates

An effective exit interview helps you and your HR team pinpoint the drivers of your company’s employee turnover. You may find that hiring practices need to be refined or employee engagement should be enhanced. Changes to the break room space, such as fresh fruit or games, will allow your employees to relax and come back to work with fresh eyes and a better attitude. This will keep up the workplace morale, shaping your company culture to include perks appealing to younger workers and will lead to increased job satisfaction. Today’s employees are career-oriented and highly motivated. Keep them on your team with other opportunities such as:

Pathway for advancement within the company
Professional development & advanced education
Flex-time & work-from-anywhere options
Management support & recognition
Lifestyle rewards or amenities like catering & concierge services
Culture of shared values & volunteerism

Add Student Loan Benefits Through ELFI

Student loan repayment tops the financial-worries checklist of many recent graduates. Older team members question their ability to pay for educating their children. New, highly desirable HR benefits like student loan contributions and financial literacy education are emerging from these employee concerns—and ELFI for Business is leading the way for employers to incorporate them into hiring packages. You can connect with ELFI directly from your HR portal and access multiple ways to contribute to employees’ student loan debt. We offer new-hire onboarding booklets, educational newsletters and onsite consultations filled with information for you and your employees. Reach out to us at 1.844.601.ELFI to add cutting-edge benefits to your HR employee package!

Learn More About ELFI for Business

NOTICE: Third Party Web Sites Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the web sites that have links here. The portal and news features are being provided by an outside source – The bank is not responsible for the content. Please contact us with any concerns or comments.

2019-06-12

Should You Pay Off Student Loans Immediately or Over Time?

When you start your post-college career, you may be tempted to breathe a sigh of relief. Before you do that, you have important decisions to make. You’ll have to stretch your paycheck to cover your new lifestyle and associated expenses: a furnished home or apartment, vehicle, insurance, and hopefully a 401K contribution. If you are like 70% of college graduates, you also have student loans that need to be repaid. In most situations, it's going to be most beneficial to pay off your loans as quickly as possible so that you are paying less towards interest. The average college graduate's starting salary, however often cannot allow for enough additional income to cover more than the regularly scheduled student loan payments. Most student loans have a six-month grace period so you can do some budgeting and planning first - if you need to. We don't suggest using the grace period unless you find it necessary to organize your finances. During a deferment such as a grace period, the interest could still be accruing depending on the type of loan that you have. If you determine that you may be better off establishing sound financial footing and a workable monthly budget before you begin repaying those daunting loans. Keep these tips in mind as you formulate a strategy for debt payoff.

Student Loans Have Advantages

Varying types of debt are governed by different laws and regulations. Banks often base interest rates for consumer credit loans on your established credit rating. Interest rates for auto loans or credit card debt tend to be higher than a mortgage or student loan interest. As you review your debt load and make a plan, remember: student loan debt comes with a few "advantages" that other types of debt don’t offer.

Preferential tax treatment: With a new job, you will be paying taxes on your income. Student loan interest is deductible up to $2,500 and can be deducted from pre-tax income.
Lower interest rates & perks: Federal student loans have lower interest rates and are sometimes subsidized by the government.
Lender incentives: Private student loans may come with incentives from the lender that make them a better deal than other credit types. These include fee waivers, lower interest rates, and deferment options.
Flexible payment plans: Options for lower payments and longer terms are available for both federal and private student debt.
Build your credit score: You can build your credit score with student loan debt. Now, depending on whether you’re making on-time payments or not, you could negatively or positively affect your credit. If you chose to make small payments during deferments, or a grace period, and regular on-time payments you will be more likely to establish a favorable credit record and reduce the amount of interest you pay overall.

Programs to Help You With Student Loan Payments

There are few options for loan forgiveness with regular debt, but student loans offer opportunities to reduce or eliminate your debt. These may come with commitments and tax implications, so be sure you fully understand them if you decide to take advantage of these programs.

Loan forgiveness: Federal student loans may be forgiven, but you'll want to be sure that you're following all of the requirements needed of the program. Be sure before choosing this option that the federal loans you have qualify for the program. Also, keep in mind there could be taxes due on the amount that is forgiven. Some student loan forgiveness programs include PAYE (Pay as You Earn) and REPAYE (Revised Pay as You Earn), Public Service Loan Forgiveness, and Teacher Loan Forgiveness.
Loan Consolidation: Multiple student loans can be consolidated into one payment with the interest rate determined by a weighted average of your current loans - interest rates. Combining multiple loans may be easier to manage on a modest starting salary. Consolidating federal loans usually doesn’t require a good credit score, either.
Refinance, and you could achieve a lower interest rate: Lenders like Education Loan Finance specialize in student loan refinancing, and have options like variable interest rates and flexible terms. Refinancing your debt could make student loan debt easier to manage than other types of credit.

Pay Off High-Interest Debt First

Before you decide to pay off your student loans, think about the financial obligations you’ll be taking on. Instead of carrying a credit card balance or making low payments for an auto loan, it makes sense to continue your low student loan payments and pay off more expensive debt first or debt with a higher interest rate. In the long run, you’ll save money and build your credit score. If you still have doubts about not paying off student debt first, consult a professional financial advisor for help prioritizing your goals and setting up a budget that lets you achieve them.

Click Here to Learn More About Student Loan Repayment

2019-06-07

How Do You Know When It’s Time to Get a Graduate Degree?

The most recent data from the Digest of Education Statistics show that over 54% of those completing graduate studies take on student loans, and the average loan amount for grad school is over $70,000. With so much at stake, isn’t it worth a serious analysis of the value?

Develop a Decision Matrix to Help You Decide

A decision matrix is an analytical tool that helps you compare different factors when making a choice. If you are about to take on more student debt to continue your education, a personal decision matrix that weighs the following questions can help you clarify your values and decide what makes both personal and financial sense.

Why do you want a graduate degree? Motivation is a complex process, and you may not know what is driving you to continue your education. A little self-analysis is in order. Do you think graduate work will elevate your prestige, make you an industry authority, or help you find a more challenging job? Or are you afraid of leaving your college comfort zone and entering the workforce?

Do the jobs in your field of study match your talents and disposition? Do you thrive in a fast-paced environment or enjoy working with the public? Perhaps a predictable or solitary workplace suits you more. If you’ve never been employed in your chosen field, it might be wise to work for a while after completing your bachelor’s degree. You’ll get a better understanding of employment opportunities and personal satisfaction levels before investing more time and money toward an advanced degree. Working before pursuing a graduate program has two other distinct advantages:

You can make progress toward paying off undergrad student loans.
You will have time to solidify your life and career goals.

Will a graduate degree improve your employment and earning potential? Before committing to graduate school, do your research. Monitor the job market on sites like Indeed, Monster or Study job requirements, salaries, and the number of job openings. Talk to individuals in your field—both those with graduate degrees and those with four-year degrees. Will an advanced degree make enough difference in job availability, career stability, and earning potential to offset the time and money required to obtain it?

Are there alternatives for enhancing your employment value? Explore professional or specialized certifications that could make you more valuable to an employer. Obtaining certificates is usually less expensive than continuing with graduate studies, and added training indicates to employers that you take the initiative and possess advanced skills.

How will you pay for your advanced degree? If you already have student loans, adding more debt for graduate school could further delay your ability to achieve many financial milestones: marriage, purchasing a home, traveling, or starting a family. Often, grad school loans come with a higher interest rate and greater accumulated balance than undergraduate loans. You’ll need to determine whether the added earning potential of an advanced degree justifies the payments and payback period. It may also be worthwhile to explore alternatives like part-time studies and employer educational benefits to lessen the student loan burden.

Refinance Student Debt in Three Easy Steps With ELFI

You’ve graduated with a college degree and increased your earning power. Now, get the most for your money by refinancing your student loans with Education Loan Finance. Our competitive interest rates, personalized service, and nationwide availability give you the power to manage your debt and achieve your goals. With ELFI, you could be just three steps away from a brighter future!

Click Here to Learn More About Refinancing Student Loans

NOTICE: Third Party Web Sites Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – The bank is not responsible for the content. Please contact us with any concerns or comments.