Should Student Loan Help Be In Your Next Benefits Package?
According to the Federal Reserve’s most recent data, student loan borrowers owe more than 1.5 trillion dollars or $31,172 per person. Out of this debt, more than 600 billion has been borrowed by families whose head of household is under 35 years of age. This huge debt is collectively owed by 44.7 million Americans with an average monthly payment of $393. Employees are now looking for employers willing to help them tackle this expense.
Millennials reported they would stay employed at a company 36 percent longer if repayment of student loans was included as a part of the benefits package. Other employee benefits such as health care, retirement, and insurance benefits are not as attractive to these younger employees. Additionally, by helping this employee sector paydown this debt, employees will be removing a long-term threat to their financial security, improving the ability to purchase homes, vehicles and other assets. By offering this additional benefit, employers will attract more talent and improve retention rates.
So, how does a company get it done?
Senators John Thune (R-South Dakota) and Mark Warner (D-Virginia) introduced the Employer Participation in Repayment Act — allowing employers to contribute up to $5,250, tax-free to their employees’ student loans. This legislation will not only be a unique tool that employers use to attract talent and ease retention concerns, but it will also help lift burdensome student loans off the shoulders of valued employees.
“Today’s economy is strong, and I believe that we should keep our foot on the gas by passing commonsense bills like the one Senator Warner and I have proposed that would give young career seekers additional tools to help overcome the burden of student loan debt and empower employers to attract future talent,” Thune said.
The bill would be an upgrade from the Employer Education Assistance Program so that it works better for employees with burdensome student loan debt. As currently written, the Employer Education Assistance Program only provides assistance for workers who are seeking additional education. It does not extend to individuals who have already incurred student loan debt during their undergraduate or graduate studies. The Employer Participation in Repayment Act changes that.
In 2018, the IRS issued a letter ruling that under certain circumstances, employers can link 401(k) matching contributions for employees to the amount of student loan repayments made outside the 401(k) plan.
That is exactly what PricewaterhouseCoopers (PWC) did a few years ago. They introduced student loan repayments as a new employee benefit—in which employers pay a set taxable monthly amount to help alleviate employees’ student loan bills.
A cutting-edge program supported by Fidelity, provides companies with a competitive advantage in the war for talent, offering employers the ability to make after-tax contributions on their employees’ outstanding student loans.
“We are excited there’s a growing list of employers recognizing the need to expand their current benefits to be more relevant to today’s workforce,” said Sangeeta Moorjani, Head of Product for Workplace Investing at Fidelity.
“Helping employees tackle the challenging issue of student debt is one way Fidelity is providing more help when it comes to an individual’s overall financial wellness — while giving employers a competitive advantage designed to enhance retention and productivity.”
They offer multiple options to repay student-loan debt and help families save and pay for college. Since Fidelity began offering the student loan benefit to its employees in 2016, more than 8,900 Fidelity employees have utilized the benefit while collectively saving $22.5 million in principal and interest and shaving off 34,625 years’ worth of loan payments.
Other companies that use Fidelity:
• Hewlett Packard Enterprise
• OCC (The Options Clearing Corporation)
• Ariel Corporation
• New York Air Brake
• Millennium Trust
In a tight labor market, every competitive advantage is needed to recruit and retain the most talented employees. With student debt consuming a greater percentage of one’s income, most employees appreciate the relief—and that could mitigate retention issues for most companies.