Editor's note: This is a contributed piece by Nicholas Park, a benefits consultant for Corporate Synergies. He has more than a decade of experience with benefits consulting firms, focusing on self-insurance plan creation, executive benefits and voluntary implementation.
Millennials, those born between 1980 and 1997, are the largest living generation, according to Pew Research Center. But unlike their older colleagues who’ve enjoyed relative job security, many Millennials entered the workforce in 2007 or shortly before and endured one of the worst economic downturns in history. Following “The Great Recession,” they faced years of unemployment or under-employment while struggling with excessive student loan debt.
Struggling to make ends meet, many Millennials moved back in with their parents. While unemployment in this demographic has eased recently, it has had a lasting effect. Millennials are bringing their financial uncertainties to work and they’re asking their employers for help.
Enter a new employee benefit: student loan debt repayment assistance.
Student debt repayment assistance is a voluntary benefit, meaning it’s optional for employees and goes beyond traditional health insurance, vision, dental, disability and retirement plans. These types of benefits have been linked to improved recruitment and retention and overall career happiness. In fact, in a MetLife study, 72% of employees surveyed said that the ability to customize benefits increases loyalty to their employer.
Student loan debt repayment assistance is one of the leading financial wellness opportunities for attracting and retaining top talent. Yet only 4% of all employers offer any kind of student loan benefit, according to US News and World Report.
How does it work?
There are several different types of student loan assistance benefits. Generally, the employer agrees to pay a specific amount toward the employee’s student loan debt or reimburses the individual for up to a specified amount of what the employee paid toward the loan in a given year. The total amount is up to the employer, but many participating companies offer $1,000 to $2,000 per year, with some offering $7,000 to $10,000). Some employers also require that an employee work at the company for a certain amount of time before enrolling, and that the employee has graduated within a certain number of years.
The employee enrolls in a plan that aligns with his or her financial situation. And by reducing or eliminating the employee’s monthly loan payment, the employer’s total compensation package can become more competitive without having to increase wages.
Some vendors use a model where the employer matches the employee student loan payment by contributing funds pre-tax into the 401(k) on behalf of the employee. The goal is a creative reallocation that frees up an employee’s budget to pay their loan while leaving more of their paycheck funds available for other necessities.
Other models offer refinancing, which will turn a federal loan into a private loan. Refinancing can lower a monthly payment, and the borrower pays off the full loan amount, often at a new interest rate.
Another model is loan consolidation, where multiple loans are combined and the borrower gets a new rate based on his or her financial background and other debt.
Still another model aligns borrowers with federal programs that are difficult for the individual borrower to enroll in and stay in over the long term. All programs allow the employer to channel payroll deductions directly to the student loan financial institution.
In addition to contributions, refinancing, consolidation or payroll deductions, programs can include student loan monitoring and counseling to educate employees on their loans and develop a plan for paying them off based on their specific financial situation.
What to watch for
These programs can have a high per-employee, per-month cost. And if your student loan benefit involves a matching 401(k) contribution, work with your benefits broker’s ERISA attorney to ensure the student loan assistance program is compliant.
While student loan repayment assistance benefits don’t yet provide a tax incentive to employers, it’s still a voluntary benefit worth considering. It stands out to younger generations during the hiring process and can increase retention rates long-term.