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Employers Explore Repaying Student Loan Debt

It's a valuable benefit—but is it fair?

A person writing on a piece of paper with coins and a graduation cap.

The competition to attract and retain talent is fierce. The unemployment rate is at a near-historic low, and companies are offering sign-on bonuses, flexible hours and a range of other perks to fill even entry-level jobs. Yet one benefit that job hunters and young employees say they want isn't being embraced: employer repayment of student loan debt.

In the U.S., more than 44 million people collectively owe $1.5 trillion in student loans, according to the Federal Reserve. About 65 percent of that debt belongs to people under age 40. Seven out of 10 new college graduates, on average, owe $37,172.

But this isn't strictly a Millennial issue. The Federal Reserve reports that 6.8 million student loan borrowers between ages 40 and 49 owe $33,765 each, on average. And the problem is likely to grow. The Congressional Budget Office estimates that $1.27 trillion in new federal student loans will be added between 2018 and 2028.

"One of the reasons that employers are taking notice is that student loan debt has a real impact on recruitment, retention and overall employee productivity," said Sangeeta Moorjani, head of workplace products for Fidelity Investments, a Boston-based financial services company. "In the war for talent, solutions to address student debt can give employers a competitive advantage."

Millennials Take the Reins

Millennials will make up 75 percent of the U.S. labor force by 2025. That gives them a lot of negotiating power, and they're telling employers they need help with their student loans.

"Young workers feel highly stressed as a result of the burden of student debt, and that debt clearly impacts their health and productivity in the workplace," said Kevin Fudge, director of consumer advocacy at American Student Assistance (ASA), a nonprofit organization that helps eliminate financial barriers to education. "Employers should realize that in order to retain the brightest young talent and demonstrate their commitment to employee well-being, they need to provide concrete and straightforward solutions to help alleviate the burden of student loan debt."

An ASA survey of 500 employees ages 22 to 33 highlights how student loan debt negatively impacts their focus, well-being and retirement planning and delays their pursuit of additional education. More than half of the workers surveyed say they worry about student loan debt most or all of the time. Nearly 65 percent say they may seek a second job to help pay off their loans.

"When employees are distracted, they aren't being productive," said Peter Marcia, founder and CEO of YouDecide, a voluntary benefits outsourcing company in Atlanta.

The ASA findings read like a blueprint for companies that are seeking student-debt solutions:

  • 86 percent of employees would commit to a company for five years if the employer helped pay back their student loans.
  • 92 percent would take advantage of a match for student loan repayments similar to a 401(k) match.
  • 89 percent would use long-term financial planning tools or advice.
  • 79 percent would take advantage of free access to a student loan debt counselor.

Benefits experts agree that financial benefits programs are most successful when an organization identifies the unique concerns of its workforce and tailors the content to its employees. Yet 75 percent of the 450 HR professionals who participated in the ASA survey reported that their company doesn't address student loan debt. And the Society for Human Resource Management's (SHRM's) 2018 Employee Benefits survey found that only 4 percent of U.S. companies offer this benefit. WorldatWork, an association of total rewards professionals, conducted a January 2017 benefits survey and also found that 4 percent of employers overall provided loan repayment assistance, while 8 percent of companies with 40,000 or more employees did so.

Student Loan Repayment Plans

One approach that is gaining interest among employers is student loan repayment plans (SLRPs). This benefit, which is usually administered through third-party vendors, allows employers to make monthly contributions directly to an employee's student loan servicer while employees continue to make regular payments. The monthly contribution, which is applied directly to the principal, can shave several years off each loan.

Early adopters tout SLRPs as an effective way to differentiate themselves from their competitors as an employer of choice.

"We expect it to help us recruit and retain good workers," said Mike Fenlon, chief people officer for PricewaterhouseCoopers (PwC), a global accounting and consulting firm. "It strengthens our brand."

PwC launched its Student Loan Paydown program in 2016. Forty-five percent of the firm's 46,000 junior employees (with six years' experience or less) signed up to receive up to $1,200 annually for six years. The firm has found that this program has become a contributing factor in the job acceptance rate among applicants.

At OCC, a Chicago-based equity derivatives clearinghouse, student loan assistance is the No. 1 benefit being talked about at job and recruiting fairs, said Erin Smith, first vice president of total rewards. "Most companies provide a pretty standard benefit menu, so when you introduce a program that differentiates you, that really matters," she said.

Aetna offers a repayment benefit that targets employees who obtained undergraduate or graduate degrees within three years of applying. Staples offers its SLRP to sales associates and high performers. Peloton, a high-tech fitness company based in New York City, offers its SLRP to any employee with undergraduate or graduate-school loans, regardless of whether he or she obtained a degree.

"The decision was a complete no-brainer for us," said Amy Stoldt, vice president of people for Peloton. "We anticipate it will help us broaden our recruiting pool, as well as retain top talent in our workforce."

SLRPs can also help with diversity initiatives, since women and minorities have disproportionately more student loan debt. A 2015 study conducted by EdAssist, a strategic tuition-assistance company, found that Millennial women were 50 percent more likely to have student loan debt than men, and more than 50 percent of applicants are likely to be attracted to an employer offering to help them repay their student loans.

To be sure, offering a SLRP can be expensive. Peter Marcia said that many employers are reluctant to budget for a new and potentially costly benefit, even if candidates are eager for the offering. Although legislation to make the benefit tax deductible is pending in Congress, SLRPs are currently treated as taxable income.

"When the benefit receives tax-favored status, more companies will start making contributions," predicted Katie Berliner, an account executive with YouDecide. "Our goal is to help clients take baby steps toward helping employees solve this problem."

[SHRM members-only toolkit: Designing and Managing Educational Assistance Programs]

Alternative Solutions

Since student loan benefits are still new, there's a lot of misinformation in the market, say benefits advisors. Many companies say that because the student loan process can be complicated and expensive, student loan benefit programs will be equally complicated and expensive.

In fact, expense is a big reason why adoption has been limited primarily to large corporations and small, tech-focused start-ups that must attract highly skilled Millennials. Another big detriment is fairness: Paying thousands of dollars more annually to workers with loans and not to their colleagues who don't have unpaid loans strikes some compensation experts as difficult to justify. Unlike tuition assistance, the payments are not improving workers' skills.

These drawbacks help explain the low adoption rate for the loan repayment benefit, despite a massive marketing push from vendors selling platforms and advisory services to put it into place. Another reason for slow adoption may be a lack of financial acumen among both employees and their managers.

"The foundation of any student loan benefit should be counseling and management resources," said a spokesperson for IonTuition, a student loan management and refinancing company. "Borrowers lack information about their repayment options, so if you can offer them access to expert guidance, you achieve a lot for a surprisingly low-resource investment."

Berliner agrees: "Financial counseling is paramount." Many borrowers first took out student loans as teenagers without really understanding how difficult it would be to repay them. Without any credit history, they often ended up with higher interest rates. As adults, they may still lack sound financial decision-making skills or the financial acumen to manage their debt effectively.

Fidelity's holistic approach to addressing employee student loan debt includes an SLRP (that pays $2,000 per year with a $10,000 cap), and financial counseling and education for employees at all career and life stages. In the development of the program, Fidelity leaders often heard employees express regret that they wish they'd known more when they were in high school and making decisions about how to finance their college education.

In response, Fidelity Labs, an in-house product incubator, created an online education platform called the Student Debt Tool to help employees better understand their situation and their options. The tool includes a student loan refinancing platform to help consolidate loans to achieve lower lending rates. It also offers tools and advice to help employees save for future college costs for themselves and their children.

"Precollege planning is critical to help ensure families are prepared to make the best decision possible for their specific situation so they're not surprised by how it impacts their financial wellness later," Moorjani said.

Arlene S. Hirsch, M.A., LCPC, is a career counselor and author with a private practice in Chicago.

Related SHRM Articles:

A 401(k) Twist on Student-Loan AidSHRM Online Benefits, July 2018

Tips for Launching a Student-Loan Repayment BenefitSHRM Online Benefits, October 2017