According to recent figures from the Federal Reserve, about 45 million people in the U.S. have student loan debt, totaling more than $1.6 trillion during the first quarter of 2020. In addition, 69% of all bachelor’s degree recipients graduating in 2019 left school with debt, as did 54% of master’s degree recipients, and 47% of doctoral degree recipients. These loans can put stress on people in good times, but that stress is only amplified during a crisis.
Thankfully, Congress passed the CARES Act in March to help address some of the income shortfall that Americans are facing. One of the provisions included in the bill addresses employer contributions to paying off employees’ student loan debt, extending the pretax treatment of employer-provided contributions of up to $5,250 per employee annually to include contributions to qualified education loans.
According to Federal Reserve statistics, the monthly average student loan payment is $393. “Benefits like this can mean a world of difference for employees,” says Alex Dontoh, a professor of accounting at New York University’s Stern School of Business. “A monthly loan payment of $393 is quite a large amount considering that the average before-tax salary of a college graduate in the U.S. is about $50,000. The student loan situation was grave before, but it has become much, much worse by the COVID-19 pandemic.”
How do you know if a student loan repayment program is something your organization should consider? Below are five reasons why a student loan repayment program can make an innovative and valuable part of your benefits package.
1) Student loan repayment benefits can help employers level the playing field
The statistics are clear: Student loan debt disproportionately affects women and minorities, who not only take out more loans but tend to carry higher balances. By offering all employees access to student loan repayment programs, those with higher debt levels can feel the support of extra payments while those with lower debt levels can finish paying off their loans sooner. In addition, a student loan repayment program can help both groups achieve other goals such as home ownership or saving for retirement.
“Since female and underrepresented minority employees have higher student loan debt, setting up or expanding existing student loan payment plans would provide proportionally greater benefit to them than other demographic groups,” says Dontoh.
2) The benefit helps organizations meet multigenerational needs
The student debt burden is a multigenerational problem. Generation X’s average student loan debt is $39,584. Baby boomers and millennials are not far behind that total with an average of $34,703 and $33,000, respectively. Employers can offer student loan repayment benefits without worrying that it will benefit one generation over another, helping them attract job candidates across the board.
adds Kate Winget, head of Gradifi by E*TRADE, an industry leader in student loan benefits.
3) Offering employees student loan repayment programs provides employers with a way to keep them happier in their roles and extend their tenure
According to the Society for Human Resource Management (SHRM), only 8% of employers offered their employees student loan repayment benefits in 2018, but research shows that such programs are in big demand. One study found that 78% of employees say they wish their employers offered the benefit. Another study linked job tenure to the availability of student loan paydown programs, with 86% of employees reporting they would stay in their job for five years if their employer offered such benefits. Employee demand (and debt level) may increase as employees look to improve skills and competitiveness after the COVID-19 crisis is mitigated.
4) Addressing a top source of financial stress can help with employee productivity
There are numerous studies that link student loan debt to a reduction in employee productivity. Researchers say it keeps employees from doing their jobs and inhibits their ability to focus. According to American Student Assistance’s study, 22% of stressed employees cannot finish daily tasks, and 24% have troubled relationships with coworkers. A student loan repayment program can alleviate some of that stress.
Marty Gervasi, chief human resources officer at The Hartford Financial Services Group, says their implementation of a student loan repayment program was related to their workforce goals of reducing employee stress. “The increasing cost of student debt continues to be a concern for the country and our employees.” he explains. “It is a financial burden that can cause a great deal of stress, and we want to help employees have more financial flexibility, enabling them to focus on their life and careers,”
5) Student loan repayment programs help companies demonstrate how they value their employees
Employees want to be proud of where they work. Discovery Surveys finds that employees who are proud of their companies are more engaged in their work and will stay with the organization longer. This is why a student loan repayment program can help tip the scales for sought-after employees who carry the burden of student loan debt. In addition, even those employees who don’t have debt may decide to stay at their jobs simply because they like that their employer is supporting those who have student loan debt.
Michael Fenlon, chief U.S. people officer at PwC, says this is the case at his organization. “Even employees with no student loan debt tell us they are proud of the pioneering benefit. They are proud the firm is taking on such a complex, important issue in our society, especially one they see negatively affecting their own friends, family, and colleagues.”
To learn more about how your organization can implement an employee student loan repayment program, visit www.gradifi.com.
The E*TRADE Financial family of companies provides financial services, including trading, investing, banking, and managing employee stock and financial wellness benefit plans.
E*TRADE Financial Corporate Services, Inc. recently acquired Gradifi, Inc. Gradifi offers financial wellness benefits focused on solutions for employers to provide their employees student loan and college savings benefits.
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