The “Great Resignation” and adoption of remote work are forcing HR leaders to look for any competitive edge in the fight to attract and develop top talent. Offering a Student Debt Employer Contribution Program at your company can be a powerful way to lure elite prospects and set you apart from the competition. It’s also the right thing to do.
The cost of higher education has gone up. Consequently, borrowing has gone up. Leading to “more than half of students leaving school with debt.” The labor market demands educational credentials to be competitive, but that requirement often comes with a heavy financial burden. To enter the workforce at a competitive level, candidates borrow large sums to pay for the soaring costs of college.
By the time those graduates apply for roles in your organization, their average loan debt at graduation is $28,950. Simultaneously, the growth of wages is out of sync with the growth of inflation and interest rates – making it harder to pay off those loans on time.
During the Covid-19 pandemic, the Federal Government created a student loan forbearance program that would temporarily pause student loan payments and interest accrual.
The White House recently announced a three-part plan to provide Student Loan Relief and cancel student debt for low- to middle-income borrowers. According to the White House, the plan would make the student loan system more manageable by:
- Providing up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education.
- And up to $10,000 in debt cancellation to non-Pell Grant recipients.
While Student Loan Relief can help alleviate ballooning debt balances and provide breathing room to America’s working families, this plan only applies to borrowers with loans held by the Department of Education. Leaving many young professionals with non-Federal loans in the lurch, wondering how they’ll face looming variants, inflation, soaring interest rates, and a mountain of debt that already looked unscalable.Complicating matters further, a U.S. District Court judge in Texas recently called student loan relief unlawful. At the time of writing, the Federal Government’s Student Debt Relief plan is tied up in appeals, and no borrower has received loan forgiveness. Reaffirming the benefit an employer-sponsored program could bring your employees.
When it comes to your employees, thinking outside the box can not only go a long way to attracting top talent, but creating a student loan repayment program at your company would also reduce employee stress, boost morale, and increase loyalty. Fidelity found that eighty-six percent of young workers would “commit to their employer for five years if they helped pay off their student loans.”
Here are three ways you can help your employees pay off student loan debt and simultaneously help your business.
Create a 401(k) Match for Student Loan Repayment
To land a job at your company, a candidate likely had to attend a four-year institution before meeting the education requirement to even interview. And it’s just as likely that that person had to borrow a large sum of money to do it.
The average student loan is structured to be paid off in ten years, but Ramsey Solutions has found it actually takes 21 years, on average, which means student loan debt follows many graduates into their forties.
Still being tens of thousands of dollars in debt in one’s forties leaves many workers asking, “Is it better to pay off my student loans or save for retirement?” That is a tough dilemma.
You can solve this problem by providing a 401(k)-contribution equal to your employee’s student loan payments. The Education Data Initiative found that “the average student loan payment is $460 per month.”
One solution is for every $50 to $500 monthly payment an employee makes towards student loan debt, your company can match that payment in 401(k) contributions. This would help your employees pay off their debts in a reasonable amount of time and save for retirement while developing loyalty to the company that’s helping them do so.
Offer Education Programs About Consolidating Debt
High-school graduates typically enter college at 18. At that age, most people don’t have the experience to understand what they’re getting into when they take on those large student loans.
Four years go by lickety-split, and people are suddenly faced with the consequences of their borrowing decisions. And it might be the case that young professionals don’t know the options available to them when it comes to consolidating debts and refinancing loans.
Paying off multiple credit cards, car payments, and student loan debts can turn into a game of whack-a-mole — it’s random chaos with no strategy. And make wealth-building investments, such as saving for retirement and buying a home, a struggle.
Your company can help by providing educational resources for paying off debt and deciding when you should refinance your student loans.
Help Working Parents Save for College
CNBC found the average cost of raising a middle-class child born in the United States is estimated at $286,000. That figure includes food, shelter, and other necessities such as childcare and piano lessons but does NOT include the cost of a college education.
When considering employment opportunities, many candidates look for companies that support working families.
If young parents are paying off their student loans for twenty years and their new baby enters college in 18 years, when do they start saving for their children’s college educations? Those children will likely need to take on massive student loans, continuing this cycle.
Your company can support working families who want to pay off their student loans and save for their children’s college educations by creating a 529 Match for Student Loan Repayment that functions the same as the 401(k) match your company will soon be offering.
Recruiting and holding onto top talent is no small feat in today’s hiring market. By creating a 401(k) match for student loan repayment, offering educational programs about managing debt, and helping working parents save for college, you can avoid driving your employees away and build lasting loyalty.
IMA will continue to monitor regulator guidance and offer meaningful, practical, timely information.
This material should not be considered as a substitute for legal, tax and/or actuarial advice. Contact the appropriate professional counsel for such matters. These materials are not exhaustive and are subject to possible changes in applicable laws, rules, and regulations and their interpretations.