Employers are trying to help employees alleviate the
burdens of outstanding student loans by offering to pay off some of the debt —
more than $1.4 trillion in the U.S. alone, according to the Federal
Reserve.
It's a relatively new benefit whose goal is usually
described by employers as a way to attract and retain talent. Employers also
say helping employees pay down debt could help them pursue goals such as buying
a house, starting a family or saving more — and earlier — for retirement.
"We wanted to create a benefits program aligned with
our employee base," said John Samaan, senior vice president and head of
human resources for Millennium Trust Co., Oak Brook, Ill. The company, which
employs a number of young professionals, launched its program in March.
Millennium Trust polled employees last year about a wide range
of benefits. "They overwhelmingly wanted help in paying off debt,"
said Mr. Samaan, noting approximately 20% of the company's 325 employees
participate in the loan repayment program. He declined to describe the terms
other than to say his company will make a monthly payment up to a maximum
amount in a program offered through Fidelity
Investments, Boston.
"Most employers are seeing this as a separate
benefit" unrelated to their defined contribution plan, said Asha
Srikantiah, a Fidelity Investments vice president who supervises the firm's
student debt program. Clients can choose the frequency and amount of payments
and the cap on payments, as well as target the audience by salary, by tenure
and even by location.
By the end of June, Fidelity had 25 clients with an
estimated 9,000 employees participating in the program. That figure includes
6,000 Fidelity employees, she said. Fidelity makes payments of $167 per month
with a five-year cap of $10,000. About 40% of Fidelity's 50,000 employees are
eligible, The program is available to workers below the director level.
Fidelity research from 2016 showed more than one-third of
all employees had student loan debt, and 79% of this group said student loan
debt interferes with their retirement savings. The research was based on 496
responses from a random sample of participants in Fidelity record-kept defined contribution
plans.
Half of the student loan debt group had loan balances
exceeding $25,000.
However, Ms. Srikantiah acknowledged the hurdles benefits
managers face when considering a loan repayment program, such as the cost to
the employer, the administrative requirements, the lack of a tax benefit and
the fact the loan payment is the same as raising an employee's income.
Not widespread
Employers' overall response to student loan repayment
programs is modest. Annual surveys by the Society for Human Resource Management,
Alexandria, Va., show 4% of companies have offered student loan repayment
programs in each of the past three years. The 2018 survey contained responses
from 3,518 HR professionals.
When Alight Solutions asked employers if they offered some
form of student loan assistance, 5% said they offer loan repayment programs
while 4% said they would very likely offer it, according to a survey published
in January.
Another 11% said they offer tools to help employees
consolidate or refinance student loans, and 15% said they would very likely
offer such tools, said the survey covering 187 employers with approximately 8
million employees.
New York
Life Insurance Co. began offering a student loan debt repayment
program in September 2017 to attract and retain employees as well as to
"take the stress off" them, said Angela Murawski, corporate vice
president for human resources.
"We monitor benefits (within the industry) and this is
an emerging benefits trend," said Ms. Murawski, adding that 800 employees
have taken part. The program is available to non-officers.
New York Life works with Student Loan Genius, a third-party
vendor that provides student loan advice and administers the repayment program.
New York Life pays participants $170 per month up to a
five-year maximum of $10,200. Ms. Murawski said the payment program most likely
will affect employees younger than 40. New York Life's record keeper, Alight
Solutions, sends a list of eligible employees to Student Loan Genius.
The student loan debt repayment program at PricewaterhouseCoopers has
received a "strong response" from employees as well as job
candidates, said Rod Adams, the financial and tax-consulting services company's
U.S. and Mexico talent acquisition leader.
The program started in 2016, and approximately 8,600
employees have signed up. Offered through third-party vendor Gradifi, the
program will repay $1,200 a year in student loan debt up to a six-year cap of
$7,200.
Like Student Loan Genius, Gradifi is one of an emerging
group of third-party firms offering student loan advice and/or loan-repayment
administration to employers.
"It's definitely been a differentiator in
hiring," said Mr. Adams, adding that PwC hires 6,000 entry-level employees
each year. The program is offered to employees below the manager level, but he
didn't provide a number.
Issues for employers
The prospect of helping employees deal with student loan
debt forces employers to wrestle with an assortment of financial,
administrative and corporate culture issues.
For example, which employees are eligible? Will employees
who don't have student loans feel their peers are unfairly receiving an extra
benefit? How much should an employer pay — and over what time period? What
about the tax implications to employers and participants? Should the student
loan payment be a separate benefit or linked to a company retirement plan?
The financial and administrative issues have prompted some
employers to offer advice on loans rather than loan repayment programs.
Los Angeles-based VCA Inc. took the advice-only approach in
late 2016.
"We said, 'Let's start this way and go from
there,'" said Don Cervantes, director of benefits for the company, which
operates animal hospitals, and offers veterinary diagnostic and dog day
care/boarding services in the U.S. and Canada.
"The primary issue is our ... (veterinarians) who come
with very material debt," said Mr. Cervantes. "Debt prohibits them
from home ownership and saving for the future."
Through its record keeper, Prudential Retirement, VCA
signed up for a student loan counseling program operated by Student Loan
Genius. Mr. Cervantes said his company chose this approach because it liked the
"independent research and referral" information offered by the firm.
VCA, which was acquired in September by Mars Inc.,
makes the loan advice program available to all employees.
According to Prudential's estimate, 583 of 4,000 eligible
VCA employees have enrolled in the student loan advice program as of June.
Advice option popular
Most of Prudential Retirement's clients seeking student
debt assistance have chosen the advice approach via the firm's partnership with
Student Loan Genius, said Snezana Zlatar, senior vice president and head of
full service product and business management at Prudential Retirement in
Newark, N.J. The advice includes information on refinancing and paying off
student loans.
Prudential Retirement's parent company, Prudential
Financial, doesn't offer the Student Loan Genius service to its own
employees. However, since the beginning of 2017, the company has given new
employees hired through its campus recruiting program up to $5,000 to help pay
off student debt, after one year of employment.
Prudential also has offered, on a pilot basis, an option
where clients can set up a non-elective contribution for a certain group of
participants. Ms. Zlatar said there hasn't been much interest in that option
yet, adding, "it's still fairly early."
Not necessarily linked
Although some providers and sponsors say paying down
student debt could encourage employees to save more for retirement, research
from the Center for Retirement Research at Boston College shows the connection
is overrated.
"The actual size of the student loan does not seem to
matter," said a report first issued in September 2016 and revised in May
2018. "Those with student loans have lower retirement savings, but
retirement wealth accumulation is similar for those with small loans and large
loans."
In an interview, Matthew Rutledge, a research economist at
the center, said: "There's something about a loan, even a small loan,
" that prompts employees to create a hierarchy of spending.
"Retirement savings has to wait its turn behind the
loan and behind (paying for) a house," said Mr. Rutledge, one of three
authors of the report. "People think of paying off a student loan as
separate from retirement savings."
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