Plans Can Boost Outcomes with Debt Coaching

The Plan Sponsor Council of America (PSCA) revealed new findings from its study assessing student loan debt and plan sponsors’ responses to the perceived notion that student debt affects employees’ participation in company retirement plans.

Titled “The Impact of Student Loan Debt on Defined Contribution Retirement Plan Participation: Plan Sponsor Perspective,” the study surveyed PSCA organizational members in April 2016. The respondents’ organizations ranged in size from fewer than 50 plan participants to more than 5,000.

Probably not a big surprise to advisers or HR professionals, PSCA finds many Millennial employees say student debt keeps them from saving for retirement. More than a quarter (26.9%) of employers “reported a moderate degree of employees citing student loan debt as a barrier to saving,” while 8.9% cited a high degree. Another quarter (25.3%) cited a low degree of interference with retirement planning caused by student loan debt.

Overall, a sizable majority (62.3%) of employers reported that more than half of their employees had a four-year college degree or higher, and 30.1% said between 10% and 50% of their employees were at that education level.  According to the Pew Research Center, 69% of students graduating in 2011-12 borrowed money to finance their college education, compared to 49% of students graduating in 1992-93.

PSCA finds these numbers are driving a shift in employer thinking, albeit a slow shift, with many employers taking a wait-and-see approach and allowing their peers or advisers to show what strategies might work best. 

“While many companies offer tuition reimbursement, a small number now offer student loan repayment programs,” PSCA explains. “Tuition repayment plans continue to be popular with an overwhelming majority (70.1%) offering these benefits. Although only 1.4% offer student loan repayment plans, 11.5% are considering it and nearly 30% are undecided.”

NEXT: Employers warming to the idea of student loan support 

And even when employers opt not to take direct action, many are still communicating about this issue. For example, PSCA finds nearly one-fourth of large companies “address student loan debt with employees in some way.” Approaches vary widely but the main themes generally involve trying to help employees understand that paying down debt does not have to be a haphazard or painful experience. 

The survey results come as multiple national studies by academic organizations show that student loan debt has reached record levels. According to EdVisors, the class of 2015 graduated with an average of $35,051 in student loan debt. Interestingly, analyses have also emerged warning folks that paying down this debt quicker is not always better for the bottom line: HelloWallet built an illustrative model to examine the impact of the decision to pay off student loans ahead of schedule and found there are very few circumstances in which paying down student loans ahead of schedule leads to a higher net wealth at retirement, particularly if a worker opts to forgo an employer match on retirement savings in order to prioritize paying down the debt.

As PSCA explains, the key is getting people to invest in their retirement while paying down student debt at the same time. This won’t necessarily be easy given weakness in the labor markets and stagnant wages, but it’s generally a better strategy in the long run than focusing just on one or the other.

“Policy makers need to be aware that the cost of higher education is impacting the ability of a generation to save for retirement,” concludes Tony Verheyen, executive director of PSCA. 

Additional research findings are at www.psca.org.