Speaking with a startling consensus, nine out of 10 college students say they want to be employed by a company that offers a student-loan benefit, according to a 2019 study. Since then, the pandemic hit and student loans were frozen for almost 45 million borrowers in the U.S. But with the pause lifting on May 1, the nearly $1.75 trillion debt is guaranteed to return to the forefront as one of the country’s most pressing public-policy issues.
That raises the question: What are companies going to do about it?
Some companies are, in fact, providing a roadmap in offering student-loan benefits and even more are considering it. According to an October survey by the Employee Benefit Research Institute, 48% of employers currently have or plan to offer student loan debt assistance as a benefit, which is up from 32% in 2018.
As for setting up a system, “In simple terms, a company provides money to pay down an employee’s student loans,” Robert Farrington, founder of The College Investor, told From Day One. “Companies can set up the arrangement in many different ways.”
One example was profiled this January by CNBC. Abbott, the health care and medical-device maker, has a “Freedom 2 Save” program that enables employees with student loans to divert the 2% minimum contribution they’d normally contribute to their 401(k) plans to receive a 5% match to pay off their loans faster. When they show that they’re using at least 2% of their eligible pay to whittle down loans, the company kicks in with a 5% contribution to their 401(k) accounts.
The program, launched in 2018, has attracted 1,800 employee participants and saw a 50% uptick in the monthly average number of employee sign-ups in the past two years, according to the company. Employee Leahannah Taylor, who was profiled by CNBC, said she used the program to help pay off $59,000 in student debt in a little less than two years.
According to the October EBRI survey, programs like Abbott’s, where 401(k) plan contributions are tied to employees’ student-loan debt payments, are the most widely offered employer benefit for student debt assistance.
But in the wake of the Great Resignation and an unprecedented movement to cancel student debt, corporate-benefits experts believe a greater share of employers will start offering student-loan payment counseling and/or loan-repayment subsidies, similar to tuition reimbursement. The data shows that such a move is likely to attract talent and retain employees. According to a survey done by American Student Assistance, 86% of employees would commit to a company for five years if the employer helped pay back their student loans.
Companies including Fidelity, Google and New York Life already offer direct payments toward employee’s student debts. Vault.co, an employee-benefits platform, offers employers the ability to pay a portion of an employee’s student loan through the platform. According to CEO Romy Parzick, this method ensures that payment actually goes towards student loans, helping them with reporting to the federal government in order to receive new tax incentives through the CARES Act.
Parzick said that the most popular benefit offered through Vault.co is the student-loan benefit. She describes it as a win-win for the employer: “It really helps with attracting talent, retaining talent and engaging talent.”
Farrington added that another plus for employers is that it’s a form of tax-free compensation. From an employee standpoint, these benefits can really provide financial relief, since an average student-loan debtor carries a lot of more than $37,000.
“Two in three college graduates have student-loan debt, and a majority of student-loan debt holders feel burdened by their debt,” Farrington said.
Educational assistance benefits also can contribute to lessening the debt divide. Women hold almost two thirds of the total student debt. In addition, borrowers of color tend to lack intergenerational wealth that would help with the burden.
“Women and people of color don’t start at the same place as their white, male peers,” Parzick said. “I think, especially for companies that want to support and attract people of color, this could be a really important component to the program they are putting together to really be welcoming to women and people of color.”
Despite the many upsides to this benefit, there’s still a long way to go before it’s normalized. “There’s really a mismatch between the demand that employees have and the supply of benefits being offered,” Parzick noted. “That’s why it’s actually a great benefit for employers to add because it differentiates them from the rest.”
Ashlie Fanetti, From Day One’s winter intern, is a Wisconsin native who recently graduated from the University of Wisconsin-Eau Claire with a degree in journalism. She has been a reporter for six years and has written about everything under the sun, but especially enjoys reporting on diversity, equity and inclusion issues and underserved communities.
