When Janice Flanders graduated from college in the early '90s, she had no student loan debt, thanks to her then-employer's tuition assistance program. She worked full time right out of high school, went to school part time, and was reimbursed for her tuition payments based on her grades: 100 percent for an A, 80 percent for a B, and 70 percent for a C.
Now that her son is a college graduate who has student loan debt, Flanders recognizes how important such programs are. So she's trying to get one started at the Ohio company where she is the HR director.
"I worked full time and went to school part time to get my college degree, and the 100 percent reimbursement is one of the reasons I graduated with honors," said Flanders, SHRM-SCP, who asked that her real name not be used. "I encouraged [my son] to try to negotiate student loan assistance as part of his [compensation] package when he was looking for work. He landed a great job, but no luck with the student loan assistance."
Student loan debt is a growing problem in the United States. In 2010, the student loan debt countrywide totaled $830 billion. Now the latest data from the Federal Reserve shows that more than 44 million people collectively owe $1.5 trillion. About 65 percent of the current student loan debt belongs to people under age 40. Seven out of 10 new college graduates owe, on average, $37,172.
Some employers are stepping in to help workers pay their debts—and attract top talent, as well. At a time of record-low unemployment, when the competition for talented workers is fierce, these companies have found that they can turn a job candidate's head by offering tuition assistance or helping to pay student loans.
"We see more and more employers adopting benefit options to help their employees with student loan debt," said Ashwini Srikantiah, vice president for student debt programs at Fidelity Investments, which is managing a student debt relief program offered by insurance firm Unum. "We're in a time where the number of people with student debt and the amount of student debt they carry far exceeds what it was in the past, and trend lines show this is not going to go away anytime soon."
Eight percent of organizations polled for the Society for Human Resource Management's (SHRM's) 2019 Employee Benefits survey offer taxable contributions to help employees repay student loans, up from 4 percent in 2018. About half of the organizations said they provide tax-exempt undergraduate or graduate education assistance. More findings from the survey of more than 3,500 HR professionals will be released in June.
SHRM supports legislation that would let employers give tax-free student loan assistance up to $5,250 a year per employee.
See a summary of SHRM's position on other workplace issues here.
Most Graduates Carry More Than $10,000 in Student Loan Debt
The average student loan debt per graduate of the Class of 2016 was $16,723. Sixty percent of that class graduated with student loan debt. Below is a breakdown of that debt by amount.
What Companies Are Doing
Here are some of the options companies are offering to help employees manage student loan debt:
- Tax-free education assistance.
- Paid-time-off (PTO) trades, allowing workers to use PTO to pay down student loans.
- Student loan repayment plans in which employers make monthly contributions to a worker's loan servicer, so long as the employee makes regular payments to the same.
- Paid tuition to a selected university, typically for online programs that give students the degrees or skills that meet the company's needs.
- Contributions to a worker's 401(k) if the worker puts a certain percentage of his or her pay toward student loan repayment.
While tuition assistance is something employers have long been offering, helping to pay off student loans is new.
Making monthly contributions toward a worker's student loan debt—if the employee also makes payments—appears to be the most popular option right now, said Mike Brown, a research analyst at LendEDU, a Hoboken, N.J.-based company that helps consumers compare financial products.
"This is really the simplest from a clerical standpoint and is the most straightforward," Brown said. "You're essentially cutting in half the time it will take to repay the student loan, [with the worker's] payments and the employer's monthly payments. Because it is quite easy to understand, I think this has become the leader in terms of student loan benefits."
Jeff Oldham is senior vice president at BenefitsPlace Distribution for Benefitfocus, a cloud-based benefits management platform firm based in Charleston, S.C. His company is getting a lot of questions from companies and brokers about the PTO and 401(k) options.
"Both these options are easy for everyone—employers and employees—to understand," he said. "One misconception is that these student loan benefits only assist recent graduates or young adults, when really, older employees may need assistance in paying off college debt for themselves, their children or their grandchildren."
Bill Gimbel, president of LaSalle Benefits, a corporate benefits firm in Northbrook, Ill., said the 401(k) option "shows employees that their employers care about their financial well-being, because saving for retirement oftentimes gets put aside to prioritize student loan repayment."
He continued, "Fortune 1000 companies seem to be leading the charge, with small to midsize companies a little more hesitant due to cost. As Millennials and Gen Z continue to enter the workforce, I can see it becoming more common for small to midsize companies, especially those with a predominantly young workforce, to adopt a program that helps employees with student loan repayment."
Are There Cons?
There can be drawbacks to some of these options.
Under the PTO option, for instance, workers may opt to put so many hours toward repaying their loans that they fail to take enough time off, leaving them burned out and unproductive.
In addition, allowing workers to put an unlimited amount of PTO toward loan payments can get expensive for an employer. Employers should consider putting a cap on the amount of PTO a worker can trade for student loan payments.
Even with that cap, it can still be expensive for an employer to make payments to a loan service, "so finding a source of funding and paying for this benefit has to be evaluated in light of the employer's total benefit and compensation offerings," said Carl Gagnon, Unum's assistant vice president of global financial well-being and retirement programs. Under Unum's student debt relief program, each year employees can use up to 40 hours of PTO that they've carried over from the previous year against student loan debt.
[SHRM members-only sample policy: Educational Assistance: Job-Relatedness Requirement]
Is It Fair?
Some critics note that it may not seem fair to workers if their companies help pay off student loans but don't also help others—perhaps older workers who've long been out of school—with their own financial obligations.
A recent AARP Public Policy Institute report, however, notes that people age 50 or older owe 20 percent of the $1.5 trillion in U.S. student loan debt.
"It is stunning that more families are taking on such sharply greater amounts of student debt than in the past," said Lori Trawinski, director of banking and finance at the institute. "For younger families, this burden impedes their ability to save for other purposes, such as for a home, their children's education or their own retirement. For older families, long-term financial security can be threatened by this burden."