What’s next for student loan benefits?
More employers are recognizing the value of offering student loan benefits.
Employee Benefit News recently sat down with Scott Thompson, CEO of student loan benefit provider Tuition.io, to discuss trends in repayment plan design, legislative changes and what this means for retiring employees.
EBN: Are you seeing any innovative student loan repayment benefit plan designs?
Thompson: There are some really interesting plans coming. More and more we’re hearing about PTO exchange. Letting the individual at the end of the year who’s not going to be able to roll over their time, exchange it for a contribution towards student loan debt. I think that’s going to be a big deal. That’s really a zero cost expense for the employer because you've already spent the money on your vacation plans. You’ve accrued that cost and now you're just saying, ‘I’m going to let the individual take it out, take it off my balance sheet by putting it against the student debt.’ I think that’s going to be a really interesting plan design, particularly for workforces that are very young.
We do see more and more match plans where employers match all or a portion of employees payment against their student loan debt. I think those plans are really interesting too, because you give the incentive for the individual if they can afford it, to actually put more against this debt. The result is employees contribute that much more and pay it down that much more quickly. And then there’ll be another interesting plan design that'll get rolled out this year, which is for individuals who are staying on their parents healthcare plan, allowing them to direct what would have been the premiums that I would pay against healthcare to their student loan debt.
EBN: We’re seeing more companies offering student loan repayment as a part of their retirement plan. Do you think we’re going to see more of this moving forward?
Thompson: I would urge you to talk to any group of millennials who was struggling with student loan debt and say, ‘If you were offered this plan, would this help you?’ They say, ‘What’s nice is that they’re putting money in my 401(k), but I’m not making it paycheck to paycheck each month. I need something to help me now with this problem, not 30 or 40 years from today. I’ll worry about that as I get a little further in my career.’
So I think what Abbott did was interesting. [Last year Abbott said it would pay an amount equivalent to 5% of an employee’s salary toward their 401(k) retirement plan when the employee contributes 2% of his or her salary to pay student loans.] It was with the mindset of how do we increase participation, which is like a legacy mindset for things. I would argue probably isn’t going to result in any incremental retention of those individuals.
Instead, employers could allow an individual to take a portion of what would have been the 401(k) match. At CSAA Insurance Group, where they are doing that, they are seeing first time enrollment in the 401(k) that they haven't seen before. [The AAA insurer started allowing full- and part-time employees to use up to 4% of their employer-matched retirement benefit to pay down their student debt through Tuition.io in March.]
Now how is that possible? It’s affordability. The bigger story there is just choice because one size doesn’t fit all. But that’s what we’re moving toward on all of this, right? It’s really interesting. So them allowing their employees to have a choice, really meaningful choice. It’s a big deal. And by the way, when you’re sitting there as that employee and somebody is giving you a job offer to go elsewhere and then you ask, ‘Do you have this?,’ that’s going to give you a moment of pause.
EBN: Do you expect to see any legislative changes on this? For example, making employer contributions to student loan debt pre-tax.
Thompson: I think with or without tax changes, student loan repayment assistance as a benefit from the employer is going to happen in a very meaningful way in the next two to three years. I think it's coming because employers see it and they realize student loan debt crushes your ability to stay focused on your job. You're less likely to be there for any significant amount of time. So there's a real benefit to the employer to provide this benefit to the employee.
In Washington, D.C. if they affect the changes to the tax law, it would make that employer contribution pre-tax. I was there recently interacting with a bunch of the individuals that are around these legislative proposals. I think what's beginning to happen is that politicians understand this debt is not keeping people from saving for retirement. Instead, that it is keeping individuals of all age brackets from contributing positively to GDP. Because we all know how much GDP growth matters. This debt for younger generations is keeping them from buying their first home or primary residence. You don’t have any of that GDP trickle down effect where the more you spend productively the jobs are created. D.C. is really beginning to understand the full picture here.
EBN: There are baby boomers that have to pay back student debt that belongs to their children. What does that mean for the retirement age and the workforce in general? Are employers thinking about this?
Thompson: I would say that the most informed employers who have workforces that are a little bit older, have said, so the person who works for me today who works until they’re 65 is now going to work to 70, 72. That’s not a bad thing, but if they're working to 70 because they have to, because they can’t afford to retire, that introduces a whole different set of workforce issues, talent issues, than what you had previously as an employer. I think most are worried about that. Mostly we have a little bit older on average workforce.
It has ripple through effects to your healthcare programs and what it costs. I’d say there’s a growing realization that's happening and it’s happening at a pretty furious pace. Employers and now saying, that's part of the reason whyI have to help with this. That's also probably the reason why there's been a major change in our book of business from employers saying they don't want to [help parents with student loan debt] to most now saying, if my employee has debt, whether it's theirs or their spouses or their children, I want to make a contribution against it. That has already happened in the last two years.
This Q&A has been edited for length and clarity.