Employer Help with Student Loans Improves Retention

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By Martin Berman-Gorvine

Young and older employees burdened with student debt are likely to stay longer with employers that offer them help with repayment, consultants say.

“It’s a way to retain employees,” Betsy Dill, senior partner and financial wellness advisory leader at Mercer LLC’s Los Angeles office, told Bloomberg BNA March 6. Mercer is a human resources consulting company based in New York City.

“In our experience, some employers, like the PwCs of the world, want to attract top talent and retain it” by helping employees with their student loans, Balaji Rajan, CEO of Chicago-based Ion Tuition, which provides employers with a web-based student loan management platform, told Bloomberg BNA March 8.

More than 85 percent of the workers responding to a survey by American Student Assistance, all of whom were between the ages of 22 and 33, agreed that they would commit to stay with their employer for five years if the employers helped pay their student loans. Over half (57 percent) of human resources managers responding to the survey said they think younger employees worry about their student loans “often” or “all the time,” they said.

The survey, which was released Feb. 28, polled 502 workers and 451 human resource managers at companies with at least 100 employees.

How to Help Indebted Employees

“There are a lot of employers that have been considering what to do about student debt,” Dill said. “Part of the concern has been around, you’ve got these millennials coming out of school with debt, but there are also people who have been in the workforce who have student debt, and people who are sending their own children to school and are worrying about how to pay for it. So it’s a problem across generations.”

Employer options on helping employees pay down debt cover a wide range, depending on the organization’s budget, Dill said. “There’s help with refinancing all the way through to subsidizing or repayment.”

The employer can repay student loans directly or, in an increasingly popular option, use the structure of their 401(k) offering to provide a “nonelective contribution” (not technically a “match") toward payments, Dill said.

When employers don’t have the budget to directly repay student loans for their employees, they can offer “personal financial wellness” training that can help them figure out what to do, Rajan said. In that way, he said, student debt help becomes a benefit like health insurance or a 401(k) and not just a “flashy” direct payment assistance plan, he said.

Employers can help indebted employees with financial education or a student loan repayment benefit, Andrew Josuweit, CEO of Student Loan Hero, which bills itself as “an unbiased solution to organize, manage, and repay your student loans,” told Bloomberg BNA in a March 8 e-mail.

As to the first option, “for some student loan borrowers who are entering repayment, the challenge is that they simply don’t know where to start,” he said. “This can cause a higher level of stress for employees and lead to lower satisfaction with pay, unhealthy coping mechanisms, and wasted time spent trying to deal with financial issues instead of working. Employers can help reduce that level of financial stress by offering financial education resources to employees.”

As to direct assistance, a bill called the Employer Participation in Student Loan Assistance Act was recently introduced to Congress [ H.R. 795], Josuweight said.

“If the bill passes, it would enable employers to make a $5,250 tax-free contribution towards their employees’ student loans,” Josuweight said. “What’s more, employees want this benefit. A recent Student Loan Hero survey found that 46 percent of those with student loans would rather have student loan repayment assistance than a 401(k) retirement plan match, and 53 percent chose repayment assistance over additional paid time off when given the choice.”

“Employers recognize it’s a drag on employees being able to save,” the high level of student debt so many have, Dill said. “There are also tools that allow employees to refinance their debts, and tools to allow them to assess their debt and decide which of multiple student loans to pay first, and whether refinancing is appropriate.”

But employees sometimes have to be convinced to use such tools, Dill said. The American Student Assistance survey (in which she was not involved) showed that although 9 percent of employees said they take advantage of employer student loan payment assistance, 16 percent said the option is available but they don’t use it. Seventy-four percent said their employers don’t offer it.

“A lot of people have low financial courage,” Dill said. “If an employee is not courageous, they’re likely not to interact with the things that are made available to them through their employer.” She compared this to not going to the dentist until one needs a root canal. Employers, she said, have to build up employees’ courage so they use the tools.

To contact the reporter on this story: Martin Berman-Gorvine in Washington at mbermangorvine@bna.com

To contact the editor responsible for this story: Tony Harris at tharris@bna.com

For More Information

The American Student Assistance survey results are available at http://www.asa.org/site/assets/files/1777/asa_young_worker_and_student_debt_survey_report.pdf. The text of H.R. 795 can be accessed at https://www.congress.gov/bill/115th-congress/house-bill/795.

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