Employers who want to help their employees pay off their student loan debt have a new program from Fidelity to consider.
Fidelity Investments announced this week it is introducing The Student Debt Employer Contribution Program, which is integrated with its benefits platform and allows employers to make after-tax contributions toward participants’ loans with Fidelity administering and fulfilling the payments. The program is being piloted during the fourth quarter of 2017 and will fully rollout in early 2018.
Akhil Nigam, managing director at Fidelity, says that the student debt program was essentially customer driven.
“The noise around student loans kept getting louder about how this is becoming a big problem in people’s financial lives,” he says. “We saw a problem in the market that was not being addressed for people, so we said what can we do about it?”
He points out that there is $1.4 trillion in outstanding student loan debt, affecting 44 million Americans, making it the second-largest consumer debt behind mortgages. It is more than all car loans and all credit card debt combined, Nigam adds.
The average student loan debt is $37,000, and while “we always think about this as a millennial problem, and it is definitely pronounced in the millennial generation, it is becoming an intergenerational problem,” Nigam says.
Fidelity conducted a survey among its clients to see how this debt is affecting them. What it found is that one-third of survey participants have student loan debt and 66% say they have had student loan debt at some point in their lives.
Out of the people who said they have student loan debt, 23% were over age 55. People over age 50 are the fastest growing sector of student loan debt mainly because more parents are taking out loans on behalf of their children, he says.
This rise in student loan debt is having a negative impact on people’s ability to save for retirement.
Over the past year and a half, Fidelity has seen an uptick in the number of employers who are interested in student loan debt, mainly because they are hearing it from their own workforce, Nigam says.
For employers, offering a student loan repayment tool can help them recruit and retain talented employees. Workers with student loan debt say they are interested in an employer’s other benefits, like healthcare and retirement, but their most pressing need is paying off their student loans. This is an opportunity for employers to modernize their benefits for Generation X and the millennials who face a huge student loan debt burden, Nigam says.
Financial wellness has become a major topic amongst benefits professionals and employers because employees who are stressed out about finances are less productive at work, Nigam says.
Fidelity’s Student Debt Tool helps people understand their current student loan debt picture and provides a personalized plan of action to lower payments or pay the loan off faster. The tool is available to everyone, not just Fidelity clients, and gives borrowers an easy-to-understand picture of how programs like federal repayment plans and private refinancing might impact their situation.
It also offers recordkeeping services for employers who want to pay down employee student loan debt as a benefit.
“Every day the demand is going up and in terms of the awareness and in terms of people wanting to do this and looking at the best ways to introduce this to their employees,” Nigam says. “The interesting thing is, the actual interest and demand is pretty varied in terms of the industries and types of employers.”
Large and small companies have shown interest in Fidelity’s program in all kinds of industries, including healthcare, technology, financial services, energy, industrial and consumer.
Plan sponsors have the opportunity to customize the plan, meaning they can choose when employees are eligible to participate and how much they will contribute each month to eligible employees’ student loan debt repayment. Most companies contribute between $50 and $500 per month with a lifetime cap of $10,000. These factors are determined by how much the employer wants to spend on the benefit.
Fidelity also came up with what it calls the “college savings 2K rule of thumb,” which tells people to multiply their child’s current age by $2,000 to determine whether their college savings to date is on track to cover half of the cost of attending a four-year public university. Fidelity added a college savings calculator, which allows people to change several key assumptions and then see how that affects how much they should be saving for their children’s college educations.
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