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Tossing a Lifeline

Debt Assistance Programs to the Rescue

Jon Burg graduated from Pace University in 2005 with much more than a diploma. He also had $65,000 in student loan debt.

For years, Burg has been “chipping away at this giant mountain of debt with a spoon,” he said. So when his employer, PURE Insurance, launched a student loan assistance program in 2017 to help supplement employees’ payments, Burg was among the first to sign up.

“When you are older and you take on the burden of a mortgage, you know what you’re looking at,” said Burg, PURE’s assistant vice president of finance and accounting. “But when you’re 22, you don’t understand the 30-year commitment involved in a student loan. In terms of benefits, this assistance is a small piece of a larger offering by PURE — but the impact is real.”

PURE, based in White Plains, N.Y., is among a small, but growing, number of businesses that have added student loan assistance to their benefits offerings in recent years. PURE offers employees an additional $100 a month to pay down the principal of their loans.

About a quarter of the company’s 650 employees have participated in the program, said Katherine Richardson, PURE’s CHRO, adding she was surprised by how much this new benefit meant to some employees.

“We had people in tears. They were overjoyed that we recognized how stressful this situation with student debt really is, and that we were doing something to help them with their long-term financial wellness plan,” Richardson said.

PURE launched its program under the guidance of CommonBond for Business, the student loan benefits arm of student lender CommonBond. CommonBond had dipped its toe into student loan assistance for its own workforce before expanding the idea to its clients. Leigh Gross, vice president of sales and strategic partnerships for CommonBond, believes that the benefit is at a tipping point because so many employees need help with their student debt.

Much like 401(k) plans rose to meet the needs of employees as companies phased out defined benefit pension plans, Gross said, student loan assistance will rise to meet the financial needs of coming generations.

“The time is fast approaching when this will be the new benefit that you need to have,” Gross said. “There is a whole group of people who can’t even contribute to their 401(k)s because they’re burdened with extremely high student debt. You have this new problem, and we believe that this benefit will evolve to meet that need.”

In fact, CommonBond for Business is going even further with this benefit. In April, the company announced a new partnership with Empower Retirement to provide student loan benefits to its 39,000 clients, reaching 9 million plan participants. The program offers student loan evaluation and refinancing, but it also gives companies the option to create student loan contribution programs or make 401(k) matching contributions to employees with student debt.

Swimming in Student Debt

In a 2018 survey of WorldatWork members, only about 6% of respondents said they offered similar assistance. But experts say that employer contributions to pay down student loans — while still on the fringe — have the potential to become the next big offering in employee benefits.

That’s due in large part to a perfect storm creating a tidal wave in Americans’ student loan debt.

A college education has become the standard for employment. Georgetown University’s Center on Education and the Workforce has predicted that two-thirds of all job openings will require either an associate’s degree or bachelor’s degree by 2020. In some science, technology and health-care industries, postgraduate degrees are also required.

At the same time, the cost of college tuition has doubled in the past 15 years, according to some estimates. Not surprisingly, the average student loan debt also doubled between 2005 and 2015, according to the Consumer Financial Protection Bureau (CFPB). The Federal Reserve Bank of New York estimated that 44 million Americans held more than $1.5 trillion in student loan debt in 2018, up threefold from $500 billion in 2006.

“It’s becoming clearer that if you have student debt, this is your No. 1 concern, and more people are coming to the workforce with it,” said Gross, of CommonBond. “Student debt stays with people throughout their life cycle. Whether it’s paying off your own loans or saving for your children, education is such a large expense now that you can never really get away from it.”

Abbott Laboratories made headlines in 2017 when it reportedly received a private-letter ruling from the IRS allowing the company to include a student loan repayment benefit in its defined contribution (DC) plan (See more about Abbott’s program.).

Although several bills have been introduced in the U.S. House and Senate to create a tax benefit for student loan assistance — akin to the tax benefits for 401(k) contributions — Congress has not yet passed such legislation.

Most student loan repayment programs are not tied to a DC plan, like Abbott’s program. Instead, employers offer a set amount, usually $50 to $150 a month, to pay down the principal of an employee’s student loan, in addition to what the employee pays each month. The contribution is taxed as additional income.

Fidelity Investments launched its Step Ahead Student Loan Assistance Program in 2016, providing $167 a month in assistance to eligible employees with a lifetime cap of $10,000. To date, the company reports that more than 9,300 eligible Fidelity employees have taken advantage of the program, with an average savings of $6,200 per person.

The overall savings for Fidelity employees has added up to $58.6 million since the program began in 2016, according to company figures: $32.2 million in principal payments, plus $26.4 million in interest payments.

The popularity of the program has paid off for Fidelity, said Asha Srikantiah, the company’s vice president of workplace emerging products and head of the student debt program. About half of the company’s new hires with student debt report that the assistance program was a major factor in their decision to join Fidelity. In addition, the company has experienced a 75% decrease in turnover among first-year employees using the program.

Bottom-line ROI indicators show that student debt repayment is a really great benefit to introduce.

“There are bottom-line, ROI indicators showing that student debt repayment is a really great benefit to introduce,” Srikantiah said. “Employers want to do well by their employees, but ultimately, a program has to make good business sense. What we’ve seen is that this benefit does.”

Figuring Out Financial Wellness

While a limited group of employers offers student loan contributions, a somewhat larger group — about 13% of companies — provides student loan guidance in other ways, according to research from the student loan technology company IonTuition.

Such programs can walk employees through the complex options for consolidating or refinancing loans on more favorable terms, said Shann Grewal, an IonTuition vice president.

The number of people age 60 and older with student loans quadrupled between 2005 and 2015.

“If you’re truly interested in creating a financial wellness program that is meaningful, you can’t sit back and wait for a tax advantage on student loan contributions,” Grewal said. “It’s a big ask for employers to start paying down student debt for every employee with a student loan, but it’s much more attainable for them to provide experts that can help today.”

Recent college graduates aren’t the only ones who need help straightening out their finances. Research shows that student loan debt cuts across multiple generations.

According to Experian’s State of Student Debt Report, Generation X had the highest outstanding student debt of any generation in 2017, with an average of $40,000 in loans. Baby Boomers had the next highest average, at $36,000.

In fact, the number of people age 60 and older with student loans quadrupled between 2005 and 2015, according to the CFPB.

Employers may worry about replacing Baby Boomers as they retire, but older employees may not be able to retire at all because of to these new financial obligations, Grewal said.

Unfortunately for most parents with college-age children, student loan assistance benefits typically do not cover student debt incurred by other members of an employee’s family.

That’s why Dennis Healy, chief sales officer with the legal insurance company ARAG, recommends that companies examine lower-cost options, such as legal and financial counseling, before committing to a student loan assistance program.

“You want to get employees educated about the whole picture, and give them resources about how to navigate their financial life,” Healy said. “You want people to be educated on how to make smart financial decisions. That applies to everybody: the college graduate, the 45-year-old single mom who is dealing with debt, or the person in their 50s who wants to retire in their 60s.”

Student Debt’s Ripple Effect

Not only do many recent college graduates emerge with loans almost equal to home mortgages, but the debt reverberates through the rest of a person’s life.

Research shows recent graduates emerge from college with negative net wealth, a stark contrast to a generation ago, when a college education created positive net wealth for most graduates, Grewal said.

Fidelity’s Srikantiah has spoken to people who have delayed not only big-ticket purchases such as cars and homes, but have put off saving for retirement, and have even avoided serious relationships because of their student loans.

“I have heard multiple people say, ‘I don’t want to bring this kind of debt into a marriage,’” Srikantiah said. “And I’ve heard really extreme versions of that, of people saying they’re concerned about dating, because they don’t want to reveal how much debt they have.”

When Dr. Kirk Breuninger graduated from veterinary school in 2010 and started work for Banfield Pet Hospital in Vancouver, Wash., he had a mix of emotions. He was exhilarated to start working in the profession he loved, but was overwhelmed by the $260,000 in student loans he had accumulated to fulfill his lifelong dream.

Like other medical professionals, veterinarians spend a small fortune to gain their skills. The American Veterinary Medical Association estimates the average student debt for the profession at $167,000.

Banfield partnered with CommonBond for Business to introduce its Veterinary Student Debt Relief Pilot Program in December 2017. More than 40% of Banfield’s 3,600 veterinarians are participating in one or more of the three program options, which include a monthly contribution of $150 directly toward student loans, as well as a low- interest refinancing option.

Breuninger served as project manager while Banfield developed its student loan assistance program. He says his employer’s contributions have already shaved years off his loan — and taken a load off his mind.

Student loan assistance benefits typically do not cover student debt incurred by other members of an employee's family.

“Having such a high amount of student debt created anxiety about my ability to pay it off and invest in my future,” Breuninger said. “That anxiety is much less now, and the program has helped me feel more connected to my workplace.” 



Trisha Howard Trisha Howard is a contributing writer for Workspan magazine.

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