15 May Empowering Employees With Student Loan Repayment Assistance
By Roxanna Coldiron
In the first quarter of 2018, outstanding student loan debt reached $1.5 trillion. Student loan debt has been increasing at a rate that both college graduates and economists find alarming. According to a study conducted by the Harvard University Kennedy School, more than half of Millennials (57 percent) who are under 30 years old consider student loan debt to be a “major problem.”
Federal Chairman Jerome Powell believes that ballooning student debt could slow down the economy, while other economists feel that student debt may not be as damaging as we are being led to believe. Regardless of where you may stand on the student loan debate, the fact still remains that paying back student loans can hurt an individual’s ability to save for the future or even afford basic necessities [PDF]. Being able to pay back student loans and get out of debt is a top priority for many borrowers.
Student loan repayment assistance the “hot, new benefit”
While student loan repayment benefit plans are relatively new, the Consumer Financial Protection Bureau has predicted that the employer-sponsored offering will continue to rise in popularity among employers who are competing for top talent. More employers are beginning to see how student loan repayment benefits can attract and retain employees.
According to the CFPB report “Innovation Highlights: Emerging Student Loan Repayment Assistant Programs” [PDF], the existence of student loan repayment benefits have been around in some form for nearly two decades. The majority of employers who offered this benefit were in the government and nonprofit sectors, and the programs targeted high-debt graduates in “public service” careers, which typically offer low wages.
Now employers from a wide range of industries are beginning to offer employer-sponsored third-party student loan repayment assistance benefits. The WorldatWork 2017 survey [PDF] shows that one in 10 employers who have 40,000 employees or more offer student loan repayment assistance to their employees.
A case study on student loan repayment benefits
Natixis Investment Managers has offices all over the globe. In the United States, Natixis employees are based in Boston, Cambridge, Chicago, Cincinnati, Houston, New York, and San Francisco. Natixis expanded their student loan repayment benefits in 2016 to include all employees with federal and private student loans. The company had previously limited the benefit to employees on their fifth anniversary and in the form of a $5,000 lump sum.
Now, employees will be eligible immediately and as long as they are employed by the company, with monthly payments of $83.33 made directly to the student loan provider up to the life of the loan, or a maximum of $10,000 over a 10-year period. For graduates with the average student debt load of $30,000, that amounts to paying down a third of their loan. The payments also go directly toward the principal, which helps to pay off the loan faster and with less interest over time.
“Helping people achieve their financial goals is at the heart of our business and our industry, so we knew that leading by example was the right thing to do,” John Hailer, (former) CEO of Natixis Global Asset Management in the Americas and Asia, stated in the 2016 press release. “Today’s student loan burden is tomorrow’s underfunded retirement problem, so it is imperative for companies to join with policymakers, educators and employees to address this critical issue.”
Other companies that have implemented student loan repayment benefits include Fidelity, PricewaterhouseCoopers (PwC), Aetna, Penguin Random House, Nvidia, First Republic, Chegg, Powertex Group, and Staples. The list of employers offering this benefit continues to grow.
Student loan repayment assistance programs can become part of an organization’s overall financial wellness strategy. Considering the fact that financial stress has been proven as detrimental to employee health and performance, employers are smart to look into ways that they can alleviate some of that stress and improve employee retention while also reducing costly turnover.
Points to consider when implementing a student loan repayment benefit
Launching a student loan repayment benefit for your organization requires a combination of understanding your organization and its needs and the financial wellness needs of your employees. The benefit can be tailored to your company; for example, some companies might match an employee’s payments to their student loans or offer to pay one or two months of their payments out of the year. Most companies opt for paying $100 per month toward employees’ student loans.
- How will you make the program sustainable? Your company may only be able to do $80/month per eligible employee. You can scale up as your revenue and company size grows.
- How will you make it easy for employees to enroll? Employees need to know how to enroll, how to keep track of their enrollment, and what enrollment entails. Simplifying the process as much as possible will benefit everyone in the long-run.
- How will this affect taxes? Until legislation is passed that makes benefit payments non-taxable, every contribution you make toward the benefit is taxable income for the employee. Your employees also need to understand the tax responsibilities regarding the benefit.
- What education will you use to supplement the program? Employees would also benefit from financial wellness coaching and other educational opportunities that help them to pay down their student loan debt, credit card debt, or mortgage.
The final word
Americans may be under the burden of student loan debt, but we can help them get out from underneath it. A financial wellness strategy that educates employees on managing their finances while also helping them to pay down one of the largest debts that American graduates carry will help to alleviate the stress that many employees deal with on a regular basis. Employees will be happier and healthier…and more likely to stay on board for longer.
As an attraction and retention strategy, student loan repayment benefits are a win/win for employers. It gives employers a competitive edge when searching for top talent to join their teams. Banks, for example, have been using the benefit to appeal to young tech workers who might otherwise prefer to work for technology conglomerates instead.
Empower your employees to maximize their financial well-being with financial health coaching, student loan repayment assistance and matched savings plans. Contact us to learn more about how offering these benefits can work for your organization.