Best strategies for implementing a student debt benefits program
LAS VEGAS — Employers have begun making greater investments in their employees’ overall well-being and placing a bigger emphasis on student loan debt as a source of financial stress.
Managing student loan debt is an issue that impacts more than 44 million Americans and has exploded to a national total of more than $1.5 trillion. Employers are in a unique position to offer employees help paying down their loans, while also reaping some rewards themselves.
The rate of companies offering student loan benefits is expected to grow to 32% of all U.S. employees by 2021, Greg Poulin, co-founder and CEO of Goodly, a student loan repayment benefit platform, said at the 2019 Benefits Forum and Expo. However, currently only 8% of employers offer student loan repayment benefits to workers, according to data from the Society for Human Resource Management, though that number did rise from just 4% in 2018.
Students loans aren’t just the burden of the millennial and Gen Z generations. Baby boomers and Gen Xers too can be impacted by student debt, whether it is from furthering their own educations or by way of helping their children pay for college.
“It’s really a multigenerational problem, and what’s happening is it’s really causing a lot of financial stress on individuals,” Kelly Rome, vice president of product development at Prudential said during the conference. “When [employees] are distracted by their financial issues, they’re not really concerned about doing their jobs.”
That worry can turn physical and make a person sick, resulting in a rise of absenteeism and employers’ healthcare costs, Rome said. This can have a great impact on a company’s overall benefits costs as well as the productivity of employees.
“Really by helping your employees with their student loan and managing that debt, you should be seeing an ROI,” Rome said. “It is something you should be able to measure over time through a reduction in healthcare costs and lower absentee rates.”
Because a student loan debt repayment benefit would fall outside the highly regulated traditional benefits such as a 401(k) plan or health insurance, employers have the flexibility to design a plan that fits their needs as well as the needs of their employee population.
One employer offering employees a student loan benefit started out by offering a contribution of $100 per month, said Dennis Cash, the director of Strategic Initiatives at Ameritas. Every year after that in which the employee remains with the company, the employer will add an additional $25 per month to the contribution.
“It becomes more and more lucrative the longer that [employee] stays with the company,” Cash said. “It really homes in on the retention aspect of the benefit. By the time an employee reaches five years they will be at the $200 a month marker.”
The client has been utilizing that program, which has a lifetime limit of $30,000 per employee, for over a year and has already reported a lower turnover rate, Cash said.
That idea of making a small monthly contribution to an employee’s debt relief can be an impactful strategy. It is something the employers on the Goodly platform are doing, with positive results.
“One of the really interesting pieces that we’ve found with Goodly is that the average employee on our system is on track to pay down their student debt 31% faster than they otherwise would with the help of other employer contributions. So even these small contributions do go a really long way,” Poulin said.
Another strategy employers can take is related to their 401(k) match. Not all employees take full advantage of their match, especially those with student loan debt. They need to retain as much as they can within their paychecks while paying down their loans. If an employer is concerned about offering a benefit to one group of employees that has no impact on another, reallocating that remaining 401(k) match is a way to go.
“Our program is tied to the retirement plan formula, so we're just looking at the employer dollars that they have set for a particular employee,” Cash said. “If the employee is not taking advantage of that, assuming it’s a full match, that is what we are saying to move over to the student loan.”
Retirement planning can often take a backseat when an individual is concentrating on debt relief. Indeed, the first report of an individual seeing their Social Security check garnished came in 2018, Cash said. But by helping an employee eliminate that debt, employers are investing in their future as well as reducing their current stress.
When employees feel that their company cares about them, they are twice as engaged at work, four times less likely to suffer from burnout and nine times more likely to stay with the organization, according to data from Limeade, a company that measures employee engagement.