The government will forgive up to $20,000 in student loan debt for Pell Grant recipients and up to $10,000 for millions of other student loan borrowers. That’s obviously good news for many of the country’s student loan borrowers. What’s less obvious is the opportunity this creates for employers to expand and highlight a student loan benefits program.
In the midst of unprecedented levels of employee turnover and disengagement, many employers are turning to student loan benefits to attract and retain talent.
And that’s for good reason: about four in five young workers say they would stay in their job for at least five years if their employer assisted them in paying down their loans. These benefits can come in several forms, from helping employees navigate the loan repayment process up to helping repay the loans or cover current tuition.
The need is certainly there. The roughly 23 million Americans who won’t have their debts completely canceled will have to start repaying their balance on January 1, 2023. Additionally, more than 8% of today’s student loan debt is held by borrowers of private student loans who won’t see forgiveness and have been on the hook for payments even while federal loans were on pause. And, it’s not just younger people who will continue to struggle with student loan debt. While 74% of millennials say their student loans impact their financial goals, 9 million Americans 50 and older are also encumbered with this type of debt.
Moreover, student debt comes with a psychological toll. According to a poll from CNBC/Momentive, more than 60% of borrowers of federal student loans say their debt has negatively impacted their mental health.
The question is, as an employer, is it worth the expense to help employees who are in debt? In many cases, the answer is “yes.”
Boost employee retention, recruitment, productivity
There are a number of ways in which helping employees reduce student loan debt directly benefits employers. For one, younger workers are more willing to commit to staying with employers that offer student loans benefits. Student loan benefits can also serve as a powerful recruiting tool: a study from Betterment at Work found that 85 percent of student loan borrowers would quit their jobs for an employer that offered these types of benefits.
While education is often regarded as a vehicle for a more equitable workforce and society, the reality is that borrowers from historically underrepresented or marginalized demographics are more likely to face difficulties paying off their student debt. For instance, according to a Brookings Institution study, just four years after graduating from college, Black borrowers owe roughly $25,000 more, on average, than white borrowers. Offering student loan benefits provides a unique way for employers to attract a more diverse workforce and underscore their commitment to diversity, equity and inclusion (DEI) and set themselves apart from the competition when vying for talent.
Also, when your employees aren’t stressed by their student debt, they’re more likely to stay focused on their work. To this point, a Colonial Life survey of 1,505 full-time U.S. employees found that more than one in five workers spend at least five hours each week thinking about stressors during working hours. Another 50% said they lose between one and five hours of work time each week due to stress.
For employers who are ready to step up to the plate, student loan repayment and tuition assistance benefits are tools that can help employees navigate, pay or repay for their education. While this is still an emerging category of benefits, there are three types of student loan repayment and tuition assistance benefits that you might consider offering your employees.
And, for HR leaders who need a couple months’ lead time to make a case for a new benefit and find a vendor to partner with before rolling out the offering to their employees, this is the perfect time to start the process to be ready by next year.
Here are the three categories and how they work:
1. Student loan navigation
It turns out that repaying a student loan often isn’t as straightforward as simply making a monthly payment. There are a multitude of complex and confusing rules and policies that borrowers have to navigate. For those borrowers who do make a mistake, there can be serious repercussions, such as having one’s credit score take a hit or having even more debt added onto their total balance.
Student loan navigation services steer borrowers through their repayment process, providing customized guidance based on the person’s unique situation. For example, Summer will scan federal, state forgiveness and private refinancing options to help employees self-manage their student loans.
2. Student loan repayment assistance
As the name implies, this type of benefit makes it easy for employers to help their employees pay off their student loans. As part of the 2020 CARES Act, employers can now contribute as much as $5,250 tax-free to employees’ student loan payments each year, which averages roughly $437 per month.
This is a significant figure when you consider that the average monthly student loan payment is about $393. And while few employers choose to max out their contributions, even $50 or $100 a month can significantly accelerate how quickly employees are able to pay off their loans.
3. Tuition reimbursement
While the two benefit categories discussed above are designed to help people pay off existing loans, a third type of benefit can help employees cover expenses associated with continuing, post-graduate education.
For example, if your employees are interested in expanding their skill set by taking a new class or getting a new degree, tuition assistance or reimbursement benefits can help them do it. In addition to adding new skills, these benefits can also speed up their professional development without straining their wallets.
Help employees with financial planning
All of these benefits not only help relieve financial stress on employees but also make it easier for them to do financial planning. For people with significant amounts of debt, goals such as becoming a homeowner, raising a family or retiring comfortably seem unattainable. In fact, three quarters of millennial borrowers say student loans are an impediment toward meeting their financial goals, while 81% of adult borrowers have put off key milestones due to their debt load.
Student loan tools give borrowers a much clearer view of what they owe on their loan as well as their repayment timeline. Having this knowledge will help them to plan the financial future they envision for themselves.
There are innumerable reasons for developing a student loan repayment and tuition assistance program, ones that will pay dividends for you and your employees in both the short and long term.