By Heather Garbers
There’s no end in sight to the student loan debt crisis that has climbed past the $1.53 trillion mark and is especially crippling to the financial health and future of our millennial employees and the Zs following close behind. But it’s also contributing to the current shortage of healthcare professionals.
Over 85% of today’s medical school graduates carry educational debt, which reached an average $196,520 in 2018 from $190,694 in 2017, according to the Association of American Medical Colleges data. That translates into a minimum of 10 years to pay it off, for those who can afford an estimated $2,200 monthly payments.
One New York emergency room doctor racked up $180,000 in debt to earn his medical school degree in 2013, only to find that despite $700 monthly payments and a starvation diet, it had climbed to $188,000 by the time he completed his residency. No wonder medical students are avoiding lower-paying specialties and there’s a shortage of medical professionals in similarly lower paying rural areas. The National Rural Health Association projects a shortfall of 45,000 doctors by 2020. Since 2010, more than 70 rural hospitals have closed and another 700 are at risk.
Healthcare industry employers looking for a competitive edge are implementing solutions to support future talent and reduce employee stress, as well as to stand out in today’s competitive job market. A good starting point is to explore today’s variety of student loan programs. These and other debt remediation programs can be a valuable recruitment and retention tool and an important financial wellness benefit to add to your roster.
Of these programs, some are pricier than others. Some offer expertise on what to do with your existing student loans and offer loan consolidation or refinancing when it makes sense for the employee. Some offer access to live counselors; others offer online tools to evaluate and make recommendations on the individual’s loan debt. Others will allow the employer to help by contributing to outstanding loan balances to help their employees pay off the principal earlier and save on interest. And some services can even offer tax-advantaged 529 savings accounts to expand the program’s appeal to a broader group of employees.
Many employers have decided that the way to engage employees with this benefit is by contributing toward their repayment burden. A simple monetary monthly contribution is one way to go. Another option is to structure contributions that grow with each year of service to encourage employee retention. However the contribution is structured, it makes the repayment program even more valuable and can keep younger workers employed with you longer.
While there is not yet a tax incentive for employer contributions towards student loan debt, the bipartisan H.R. 795 bill would expand Section 127 of the Internal Revenue Code to allow employers to contribute up to $5,250 on a tax-free basis to employees. In addition, the Retirement Parity for Student Loans Act is advancing in Congress. This legislation would allow employers to make matching contributions under 401(k), 403(b) and SIMPLE plans for employee student loan payments. Stay tuned.
Here are a few considerations to help structure a successful program:
- Determine your goals and objectives for your launch program and build it from there. Do you want to recruit or retain doctors and other healthcare professionals, or do you want to improve your overall competitive position in your market? Thinking about such issues will influence how you structure the benefit.
- Introduce your new student loan program outside of open enrollment when your staff has 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 student loan balances, but the amount you contribute is taxable income for the foreseeable future.
- Make your contributions manageable and consider a cap on total contributions per employee. 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 to simplify the process for your employees and ensure the contributions are going to the loan balance.
The student loan crisis means employers must be more creative to avert issues that stress their employees and impact performance. The stakes are that much higher in the healthcare field, given the one-two punch of escalating education costs and a worsening shortage of physicians. Student loan repayment programs are a likely starting point for employers hoping to counter the trends. the trends.
HUB International’s team is ready to help you assess, access and put in place programs and services to help address the financial wellbeing of your workforce.