Plan Sponsors Should Do Their Homework Before Offering Student Loan Assistance

The cost of a four-year education increased 213% from 1988 to 2018, according to the College Board—and that’s after taking inflation into account. Runaway tuition increases finally slowed down this year—for the first time in decades—because of the coronavirus, but overall student debt has only increased during the pandemic, data shows. With an estimated 35% of jobs now requiring at least a bachelor’s degree, according to Georgetown University, more than 44 million graduates have had little choice but to enter the workforce with student loan debt.

These types of loans, as well as other financial baggage, can be a distraction that diminishes employee productivity, causes stress and anxiety, and may prevent employees from achieving their financial wellness goals, such as saving for retirement. In response, employers have recently begun introducing benefit programs designed to assist employees with their student loan debt.

Now may be a particularly opportune time for plan sponsors to consider launching a student debt relief program, as the Trump administration’s COVID-19 stimulus bill passed in December has temporarily suspended income taxes on all employer contributions toward student loans. Here are steps you can take to determine if student loan assistance might be a benefit your employees would value.

• Define your goals
  Establishing clear-cut goals from the program’s outset will position your organization to objectively evaluate its success over time. For many plan sponsors, the decision to initiate a student loan benefit has to do with recruiting needs. For instance, there might be fierce competition for qualified candidates, and offering potential employees a path to pay off debt quickly could give the plan sponsor a recruiting edge. Other commonly cited reasons for offering a student loan benefit include reducing turnover, improving employee focus/productivity, supporting employee financial wellness and improving overall employee satisfaction/well-being.

• Understand your participant population
  While the cost of college tuition continues to climb, college enrollments have been on the decline for nearly a decade. Clearly, not everyone is inclined to continue their education after high school, nor do all jobs demand a post-secondary education. Retail, automotive and manufacturing are just a few industries that offer many jobs without requiring a degree. Before you decide to offer a student loan debt relief program, consider your population. Of all jobs at your company, roughly what percent don’t require a college degree? What percent require a master’s degree or higher?
  
  Consider issuing a survey to determine your employees’ level of need for student loan debt relief programs. How many employees have existing student loan debt? How many might pursue additional degree programs if student loan relief were available? How many have spouses or dependents with student loan debt?
  
  Review the findings to estimate potential program participation and prepare a budget. Survey results can also help you determine if loan debt is concentrated among certain groups, such as new hires or employees who have been with you less than five years. This could help dictate whether your program should be open to all employees or only future hires.
• Consider your options
  Despite the fact that student loan debt relief is comparatively new to the employee benefits world, plan sponsors have implemented a wide variety of options for employees. There’s plenty of room to get creative and design a program that makes sense for your employees and your organization. Consider these ideas or come up with your own:
  • Online budgeting tools/repayment calculators
  • Access to providers of payment plans, debt consolidation and/or refinancing
  • The option to exchange unused benefits (such as sick days) for direct contributions to student loans
  • Employer contributions (matching) to a defined contribution (DC) plan when employees make payments toward their student loans
  • Direct employer contributions to student loans
    

• Understand the challenges
  It’s not always easy to get executive buy-in for student debt relief programs, which can be costly and only benefit a subset of employees. To maximize organizational return on investment, plan sponsors may require employees who receive student debt relief to commit to remaining with the company for a period of up to five years. Employees who choose to leave the company before the commitment period ends must repay the student debt contributions they received.
  
  Plan sponsors may place annual or lifetime maximums on student loan benefits as a further means of controlling costs. In addition, the latest COVID-19 relief bill, attached to the Consolidated Appropriations Act, 2021, allows employers to contribute up to $5,250 annually toward employees’ student loans and deduct the contribution from their taxes.
  
  As prudent as such plan restrictions may be, plan sponsors should avoid diluting student debt relief benefits to the point that they no longer deliver the anticipated gains in recruiting, retention and productivity.

With more and more employees entering the workforce in debt, student debt relief programs are likely to grow in popularity. Taking time to understand how these programs can enhance your organization’s overall benefits strategy, and contribute to employee productivity and well-being, should pay dividends in your efforts to attract and retain talent.

Jay Schmitt, ASA [Associate of the Society of Actuaries], is a principal of Strategic Benefits Advisors, an Atlanta-based, independent, full-service employee benefits consulting firm that solves benefits issues for clients with 500 to 300,000-plus employees. He has more than 25 years’ experience in benefit plan administration and consulting. He can be reached at info@sba-inc.com.