According to recent statistics, there are now more than 44 million unique borrowers who collectively owe $1.6 trillion in student loan debt—making student loans the second largest consumer debt category after mortgages. Those are staggering numbers.
For the considerable Millennials and massive Gen Z workforce to follow, student loan debt is a primary economic concern, often before mortgages and retirement savings can even be considered. Smart businesses have taken notice in a growing trend toward creating student loan repayment assistance programs as a necessary company benefit to attract and retain younger talent.
There are a range of benefit approaches that have already been rolled out across a number of forward-thinking companies in the past couple years. Some employers offer to pay off a portion of employee student loan debt on a monthly or yearly basis with caps on total amounts to be paid. Organizations also differ in whether they offer this repayment benefit to only full time or also for part time employees, while others offer a lump sum repayment only after an employee has worked at the business for a certain amount of time. Most student loan repayment plans target payments to the principal total in an effort to reduce subsequent interest payments. Employers can also offer an automatic payroll deduction option to target student loan debt to facilitate a proactive payment plan without incurring costs to the business.
A more recent benefit technique has been embraced this year by companies like Travelers Cos., and Raytheon. These businesses offer matching contributions to 401(k) plans for a certain amount of employee dollars spent on student loan repayments. Abbot Laboratories has adopted a unique retirement approach where an employee that contributes 2% of their paycheck to student loan repayment will receive a 5% company match to their 401(k). This 401(k)-contribution approach seeks to prevent employees from falling behind on retirement savings due to student loan debt, thus keeping younger employees more actively and directly engaged in building a strong financial future through company loyalty.
Such benefit offers can prove to be a valuable recruiting tool for top candidates coming straight out of school, with 78% of employees seeking some form of student debt relief from their employers, according to BenefitsPro. That being said, only a small portion of businesses currently offer such benefits—creating a strong talent draw and retention factor for companies who are early adopters of this benefit.
Student debt has also proven to be a major factor of financial insecurity and stress for a large portion of the workforce—prompting employees who receive some sort of financial support from their workplace to report an increased sense of loyalty and productivity. Studies by PricewaterhouseCooper and LaurelRoad have also found that decreased absenteeism and stress can also be seen as a positive byproduct of student loan relief, with 58% of millennials saying they would be willing to trade vacation days for student loan forgiveness at their current jobs.
With the prospect of improved retention, increased productivity, and a carefully structured student loan repayment plan, one of the most important advantages of adopting such a plan may actually be reduced costs overall. Student loan repayment need not be overly expensive for the company, with some repayment options available for little or no cost to the employer and a significant benefit in saved expenses surrounding employee turnover and the subsequent training of a replacement.
Through 2020 and the years ahead, we expect to see this benefit spread as demand rises and recruitment and retention are rewarded for early adopters. Whether your company offers payment relief, a matching donation to 401(k)s, or a new form of repayment, student loan debt is a $1.6 trillion-dollar price tag that will not soon go away. Investigating options and offering student loan repayment as a benefit is employee-conscious, forward-thinking, and solutions-oriented, without a major downside to detract from implementation.
At the Hilb Group Department of New England and Sapers & Wallack, we see this benefit as a valuable addition to group benefits programs that deserves your attention. Please contact us to discuss further and consider options.