By Heather Garbers
Student loan debt – now at an estimated $1.53 trillion and growing – isn’t merely a problem for your millennials or the Zs coming up behind them. Data shows that over 44 million of the 171.3 million adults under 60 had student loan debt in 2016.
It makes a good case for adding student loan resources and repayment (and other debt remediation assistance) programs to your roster of benefits because of the broad base of employees who can benefit. When 16 percent of employees spend over 20 hours at work each month stressing over their finances, financial wellness becomes a major issue affecting the company’s bottom line. Anything you do to help will improve employee engagement and productivity while also reducing absences.
Establishing a student loan repayment program will also set you apart from the crowd when only about 4 percent of U.S. companies currently offer them. While 95 percent of HR executives want to help improve their employees’ financial health, only a quarter have student loan debt on their radar – behind health and retirement benefits. Meanwhile, only 9 percent of employees are offered the benefit even though they say it would make them more productive and committed to their employer.
Most employer sponsored student loan repayment programs are managed through third-party vendors. Companies that want to create a robust program and use it in recruitment and retention strategies will find that contributing toward employees’ repayment burden (directly paying the servicer to pay down the principal of the loan) has the most appeal. Contributions can be structured various ways – a simple annual or monthly contribution or one that grows with each year of service. Either way, a contribution makes the program more valuable in attracting and retaining talent.
Something to keep in mind with this strategy is that to date, employers have no tax incentive to make the contribution and it’s taxed as regular income to the employee. However, the bipartisan Employer Participation in Repayment Act was recently reintroduced in the House of Representatives and would allow companies to contribute up to $5,250 towards student loans on a tax-free basis.
In addition, studies are showing that millennials are putting off saving for retirement likely due to high amounts of student loan debt. However, 92 percent would take advantage of an employer matching program for student loan repayment (similar to a 401(k) match) if it were made available. This could be valuable in helping employees start planning earlier for retirement. The Retirement Parity for Student Loans Act that is advancing in Congress would allow employers to make matching contributions under 401(k), 403(b) and SIMPLE plans for employee student loan payments.
Regardless of the tax advantage, employers should consider contributing to their employees’ student loan financial needs. Before moving forward, here are a few considerations to keep in mind:
- Before you do anything, decide your goals and objectives for your launch program and build it from there. Is it to recruit or retain employees or to generally put you on more competitive footing as an employer? Are you finding that younger employees aren’t putting money into your 401(k) account because of student loan pressures? These are things to think about that will influence your decisions in structuring the benefit.
- Introduce your new student loan program outside of open enrollment where employees will have more bandwidth to understand its importance. Talk it up as you’re recruiting. This will go a long way toward optimal engagement.
- Be honest about the pros and cons before people sign up. Yes, this can shave some years off employees’ student loan balances, but, yes, the amount you contribute is considered taxable income for the foreseeable future.
- Make your contributions manageable and consider a cap on total contributions per employee. “Everyone else” may be contributing $100 per month per employee, but smaller businesses may need to protect their budgets. Go easy as you’re building the program and remember that you can always go up, but going down is a different proposition.
- Keep it simple. The easier you make it, the better the acceptance. Cut down on the paperwork. Make the payments to the vendor directly so your employees don’t have to and you ensure the contributions are going to the loan balance.
The student loan debt crisis is only worsening, and ultimately, the resulting financial stress will lead to disengagement – or worse – in the workplace. When employers play a role in addressing the issue with student loan benefits, everyone comes out ahead. Strategies like these that address the financial issues confronting your employees today lead to a less stressed, more productive workforce and can help to increase their loyalty to you as an employer.
HUB International’s team is ready to help you assess and put in place programs and services to help address the financial wellbeing of your workforce.