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Tips for Launching a Student-Loan Repayment Benefit

A $100-a-month employer contribution can get workers out of debt years sooner

October 2, 2017

A woman holding a graduation cap on a stack of coins.

Helping employees pay off their student loans as a workplace benefit continues to generate a lot of buzz even though it's offered by a small minority of employers—just 4 percent according to the Society for Human Resource Management's 2017 Employee Benefits survey report, based on a January/February poll of the organization's members.

WorldatWork, an association of total rewards professionals, conducted a January benefits survey and also found that 4 percent of employers provided loan repayment assistance, while 8 percent of companies with 40,000 or more employees did so.

Despite these relatively low numbers, in September the Consumer Financial Protection Bureau—a federal consumer protection agency—predicted that loan repayment programs could grow quickly as employers recognize the value of offering financial well-being benefits.

"We are seeing an increasing number of employers adding student-loan repayment assistance to their benefits programs as a powerful differentiator in attracting and retaining employees," said Heather Coughlin, solution leader for financial wellness at Mercer, an HR consultancy.

"Student-loan repayment assistance has the potential to affect more than 44 million Americans burdened by student loan debt," said Scott Thompson, CEO of Tuition.io, a benefit administration firm. "The $1.4 trillion student loan crisis has … heightened financial stress, which can lead to disengagement in the workplace," he noted.

"We know student debt weighs heavily on people—more than a third of Fidelity retirement plan participants surveyed have student debt, and 80 percent of those say it delays retirement planning," said Kevin Barry, president of workplace investing at Fidelity Investments.

Advantages for Employers and Employees

"Companies are choosing to help their employees get out from under student loan debt because it can help them become an employer of choice. And when they are, they can hire faster, retain talent longer, and even improve gender and cultural diversity," said David Aronson, CEO of Peanut Butter, which helps employers offer student loan assistance as a benefit, when he spoke at the September EBN Benefits Forum and Expo held in Boca Raton, Fla.

"Many employers are targeting a $100-a-month contribution," Aronson said. "The average person with student debt has $31,000 outstanding. They're paying it off over 10 years at a 6 percent interest rate, so $100 extra a month is going to help them save $11,000 in principal and interest, and get out of debt two years faster than they otherwise would."

Loan-Repayment Assistance and Advice

Recognizing the stress and financial burden that student debt can create, life insurer New York Life recently launched a student-loan repayment program offering up to $10,200 over five years for eligible employees—which tops out at $170 a month.

Employees who have taken out student loans for themselves will receive assistance to accelerate their student-loan repayment plans. If they have taken a loan out for their child, they will receive counseling and advice to help guide them through the repayment process, said Katherine O'Brien, chief HR officer at the New York City-based firm. These benefits are available to eligible employees on day one of their employment, with no waiting period.

"Part of our commitment to the well-being of employees means offering benefits that address the real challenges they face," O'Brien said. "Student loan debt can create significant obstacles when it comes to achieving other life milestones, such as buying a home or starting a family."

[SHRM members-only toolkit: Designing and Managing Educational Assistance Programs]

A Success Story

"This is one of those benefits that we probably get the most questions about when our new employees are starting or when we're going through the talent acquisition process, because it's something new and very exciting," said Nicole Skaluba, director of employee services at Rise Interactive, a Chicago-based digital marketing agency that began offering student-loan repayment assistance to its 233 employees just over a year ago.

"The average age of our employees is 27, and they were telling us they couldn't invest in our 401(k) plan because they needed to pay off their student loan debts first," said Skaluba, who co-presented with Aronson at the EBN Benefits Forum.

Rise Interactive launched its program by offering a loan-repayment contribution of $50 per month because "we want to get a sense of who would enroll and what that would mean to our bottom line," she said.

"We talk about this in great detail during our recruitment process," Skaluba added. "We want to get people excited about it because we know it's a strong recruitment tool for us. I can make this a selling point for people I want to bring into the organization."

Rise Interactive had 10 percent of its employees enrolled on the day the program went live, "and we're now up to 25 percent of our people enrolled," Skaluba noted. "As we bring into the organization roughly 10 people per month, we're seeing the bulk of them join, so we know it has had a tremendous impact."

Aronson and Skaluba drew these lessons from Rise Interactive's experience:

Start slow and grow. "Although we see $100 as the most common monthly loan-repayment contribution target, we see $50 as the most common starting point," said Aronson. "You have more control over your budget by starting at a lower dollar amount and can always increase the contribution."

Keep it simple. Rise Interactive made all employees eligible to receive contributions from their starting date of employment. "There aren't any special tiers or requirements related to the plan, so it's easy for HR to communicate and for employees to understand," Skaluba said.

There are exceptions to this advice, however. "While most commonly we see employers offer one flat-dollar monthly contribution to all employees, that's not right for every organization," said Aronson. A retail organization, for instance, "may choose to offer one amount to their corporate employees, a different amount to store managers and another to part-time associates. You can target your benefits that way as well."

Have shared accountability. At Rise Interactive, employees must continue making at least the minimum payment on all their loans to participate in the program. "Employers should ensure that participants are making loan payments through direct debit from their bank because "almost every loan servicer across the country offers a 25 basis point [0.25 percent] discount for borrowers who make loan payments through direct debit from their bank," Aronson said. "If employees aren't already doing that, we help them to put this in place," he added.

The benefit can be integrated with payroll administration, although "if not, it generally takes about one-half hour of HR staff time per month to administer," Aronson said.

He and Skaluba suggested that companies also provide advice on how employees can consolidate and refinance all their borrowing, to help those in debt to improve their finances as they pay down their loans.

While some companies provide a roughly equivalent benefit to employees without student loans—such as subsidized gym memberships—most don't, "and we haven't seen this becoming an issue," Aronson said. "Employees seem pleased to work for a caring employer, whether they benefit directly from this program or not."

PwC's Tips for Successfully Offering Student Loan Paydown

"Companies should have an honest conversation to find a monthly payment that is large enough to genuinely help the employee, but reasonable enough to make the benefit possible for the employer," advises Mike Fenlon, consultancy PwC's chief people officer.

PwC, which launched a student-loan assistance benefit for its employees in September 2015, pays $100 per month for a total of up to $7,200.

The program recently celebrated its two-year anniversary. Employees participating from the start had earned $1,200 a year, reducing their loan principal/interest obligations by as much as $10,000 and shortening their payoff period by up to three years, Fenlon noted.

He advised those who are putting a student-loan assistance program in place that:

It needs to be easy for employees. Employees responded favorably to an arrangement that limited the amount of paperwork they had to do. "PwC pays directly to the loans through a third party vendor, so that staff does not have to handle the payment each month," Fenlon said. "It's seamless and staff tell us they love that."

Clearly outline the pros/cons. An employer's student loan payments are taxable income, and employees should understand this before they sign up so they aren't surprised at tax time.

Make your people proud. "We anticipated negative feedback from employees who do not have debt," Fenlon said. "We did not experience that. In fact, even employees with no debt told us they felt proud of the pioneering benefit."

Related SHRM Articles:

A 401(k) Twist on Student-Loan Aid, SHRM Online Benefits, July 2018

Easing the Student Loan Debt Burden? Points to Consider, SHRM Online Benefits, January 2016

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