Over 2/3 of college-educated Millennials would tell a friend about the benefits and perks offered by their employer.
85% of college-educated Millennials would accept a job when student loan repayment is offered
Employers looking to set themselves apart when it comes to recruiting and retaining telent should consider setting up a formal program to help them repay their student loans.
That’s the finding of a recent study from American Student Assistance, which surveyed 52 workers between the ages of 22 and 33, as well as 541 human resources managers at companies with more than 100 workers.
What they found:
Overwhelming demand by stressed out recent college graduates for help from employers with student debt.
- 86 percent of younger workers say they would commit to stay with an employer for five years if that employer offered assistance with paying off student loans.
- 93 percent of them say they would take advantage of a sign-on bonus targeted at paying back student loans.
- 92 percent report they would take advantage of a student loan repayment matching contribution program, similar to a pension matching program.
- 79 percent say they would take advantage of employer-provided, free access to student loan counseling.
The Human Resource Executive’s Health & Benefits Leadership Conference highlighted the growing desire for student loan repayment as an employee benefit.
Tuition.io conducted a survey of over 1200 corporate employees, asking them questions about their preferences and needs regarding benefits.
The findings were striking:
- When asked if they felt burdened buy their student loans, a majority (56%) of respondents said that they felt “very” or “extremely” burdened.
- When asked if they would join a new company because it offered student loan contributions, more than 80% said yes.
- The percentage of employees who said they would be more likely to stay with a company because it offered student loan contributions was even higher: 87%!
- 55% of respondents said they prioritize paying off debt, while only 45% prioritize saving for the future.
- When asked what benefit is more important between student loan contributions and tuition reimbursement, two-thirds (66%) chose student loan contributions
Of the respondents, 60% were age 35 or under. The survey shows how for today’s millennial generation, student debt is a major burden in their lives and that paying off this debt is more of a life goal than saving for the future.
Their answers indicate that student loan repayment assistance is a benefit that can be used to attract high quality employees but may be even more effective at helping to retain them.
According to Paula Hendrickson, a senior vice president and director of retirement consulting services at First Western Trust, and Eileen Shaw, a consultant for the same company, trying to attract and retain a new generation of highly skilled millennials, companies pay down their employees’ loans, to help them balance their life expenses with their entry-level salaries.
With the average college graduate having $37,172 in student loan balances, and the average monthly student loan payment is now $341 per month (median: $203 per month), companies are starting to recognize that helping millennials to manage debt early in their professional life will help minimize the financial stresses that can impact workplace productivity.
These statistics put at risk the retirement prospects, according to the Center for Retirement Research at Boston College. In a study, the center estimated that recent growth in student debt could increase the number of employees facing inadequate retirement income by 4.6 percentage points. Such higher debt loads make it harder to buy a home or contribute to retirement plans.
A report by Facebook Inc., which analyzed public posts and polled thousands of users anonymously, found that only 13 percent of people age 21–34 see being able to retire as the definition of financial success.
The No. 1 indicator of financial success to them is being debt-free.
How can you stay focused on the faraway dream of retirement when you’re obsessing over meeting this month’s debt payment?
Alicia Munnell, a Boston College professor who’s the director of the Center for Retirement Research, says linking student loan payments and retirement contributions is a “nice idea.”
Prudential Retirement has partnered with Student Loan Genius, becoming the first retirement plan recordkeeper to offer the start-up’s new pension contribution feature.
The new partnership with Student Loan Genius will enable Prudential Retirement to offer an innovative benefit to clients that gives their employees an opportunity to build retirement savings while paying down student debt.
Employers who offer this retirement savings vehicle gain a competitive advantage, as it enables them to attract and retain top talent, Prudential says.
If an employer elects to add this feature to their plan, employees who make student loan payments processed through Student Loan Genius receive a pre-tax contribution to their retirement account from their employer based on that student loan payment, whether or not they contribute to their pension plan or receive any matching contributions.
The contribution, paid as a flat dollar amount, or a percentage of the student loan payment or of the employee’s compensation, can be offered annually, monthly or for each payroll period. For example, an employer could offer a $75 monthly contribution to an employee who pays a $400 loan repayment each month.
“As student loan debt grows, workers are having to choose between paying off their student loans or prioritizing other important financial goals,” says Jamie McInnes, senior vice president and head of Total Retirement Solutions for Prudential Retirement. “For example, our research tells us many workers will choose to pay down debt rather than save for retirement. As an industry, we need to understand this and provide solutions to help maximize retirement security for American workers.”
Forward-thinking employers have recognized the need and have partnered with financial institutions to provide Student Loan Paydown (SLP) programs. About 4% of the Society for Human Resource Management’s members, offer an SLP.
They partner with a benefits administrative company to manage the plan, such as Tuition.io, Peanut Butter, Gradifi and Student Loan Genius.
Create Real Financial Wellness
The programs cannot only attract new workers but — more importantly — also keep existing employees.
Millennials, in particular, are known for job-hopping. And 38% of those between the ages of 19 and 35 – who were polled in Deloitte’s 2017 Millennial Survey said they plan to leave their jobs within two years.
The employer contribution—paid as a flat dollar amount, as a percentage of the student loan payment or as a percentage of the employee’s compensation—can be offered annually, monthly or for each payroll period. For example, an employer could offer a $75 monthly contribution to an employee who pays a $400 loan repayment each month.
Workplace repayment plans can be structured so that benefits grow over time, cementing loyalty thus reducing company costs for recruiting new employees.
Examples of companies that are offering this perk include the federal government, many law firms and hospitals/health care clinics, Natixis Global Asset Management, Pricewaterhouse Cooper, Chipotle Mexican Grill, and many others,
According to a recent survey by the Plan Sponsor Council of America, fully 1/3rd of Millennial employees report that student loan debt is a moderate or high barrier to saving for retirement. In the notoriously low-paying service industry, this figure amounted to over 42 percent. But the problem is not limited to service workers, by a long shot: The number of Millennial workers reporting that student loan service obligations were a moderate or high barrier to saving for retirement was even higher in the technology and telecommunications industry, where fully 45.5 percent of respondents reported that monthly student loan payments were hamstringing their ability to contribute to their own retirement funds.
The industry leader in considering a student loan repayment assistance program is the telecommunications industry, with 20 percent of employers of all sizes surveyed indicating they are considering adding a program. More than 14 percent of financial services employers, 16.1 percent of manufacturers and 16.7 percent if insurance and real estate industry employees are considering adding a student loan repayment assistance.
Fidelity and Aetna match up to $2,000 a year in student loan payments (capped at $10,000 total) with payments made directly to the loan servicer, as opposed to the employee.
Nvidia, a maker of graphics processors, offers full- and part-time workers as much as $6,000 a year up to a total of $30,000.
PricewaterhouseCoopers offers employees the ability to opt into an annual $1,200 SLP.
The State of Minnesota has decided to do more to attract young, recently-graduated teacher applicants by sweetening their benefits package with a student loan repayment assistance program.
Thus far, the program has been a terrific success, attracting at least 3,000 applicants from 350 school districts. These applicants are competing for 1,000 ‘scholarships,’ in the form of a $1,000 payment to their student loan servicers. The scholarships are under the auspices of the Minnesota Teacher Shortage Loan Program under the Minnesota Office of Higher Education. The awards are for up to $1,000 in student loan repayment assistance per year, for up to five years, for a total benefit of $5,000.
Even employers who don’t make contributions toward the SLP find that offering automatic payroll deductions for the SLP helps ease the pain for employees making debt payments. Some companies let workers elect to apply all or a portion of their bonuses to their student debt.
Companies also structure the debt repayment with auto-enrolment-type automatic payroll deductions.
Another trend is to provide more immediate benefits to new employees who cannot afford to contribute to the pension plan, by contributing what would have been matching contributions toward their SLP.
While not ideal when considering long-term retirement savings goals, it does allow employees to get themselves debt-free earlier so that they can focus more of their income toward retirement savings later in their careers.
Loan repayment is more important than pension contributions
ASA’s study highlights an important generational difference between Millennials and older workers. A strong majority – 59 percent, say that paying off their student loans is a higher financial priority than contributing money to their pension – even though most employers provide a matching contribution to their defined contribution pension plans.
76 percent of respondents say they would take advantage of student loan repayment assistance, while only 60 percent say they would participate or are participating in their employer’s pension match. But only 16 percent of employers surveyed actually provide any kind of tuition assistance program.
What’s driving the demand?
Severe stress over the overwhelming burden of college debt; Nearly 25 percent of outstanding student loan accounts are currently in default.
It’s having an impact on their mental and physical health:
56 percent “often” worry about paying of their student loan. 26 percent of them report they worry about their student loan debt “all the time, and 40 percent say worrying about student loans has damaged their health.
The ASA’s researchers found that student loans were the greatest stressor in their financial life, with 31 percent reporting they worry most about their student loans.
That was significantly higher than the percentage reporting they worry most about credit card debt (26 percent), and far greater than the percentage of Millennial workers who reported worrying most about their mortgages and car loans.
Existing student loan debt is also holding back career and professional development. More than half of those surveyed say they would like to go to graduate school but are unable to because they cannot take on any more student loans.
“Young workers feel highly stressed out as a result of the burden of student debt and that debt clearly impacts their health and productivity in the workplace,” said Kevin Fudge, director of consumer advocacy and ombudsman at ASA. “Employers should realize that in order to retain the brightest young talent and demonstrate their commitment to employee well-being, they need to provide concrete and straightforward solutions to help alleviate this burden.”
Chances are at least some of your employees – possibly many – are struggling financially.
Seven out of ten Americans say that finances are their most common source of stress. Half say they find their current financial situation stressful, and fewer than 40 percent of households have three months of savings put away.
According to Tuition, although employees may not come to you directly to discuss their personal financial situation, if they are under inordinate amounts of financial pressure at home, chances are those stressors are already spilling over into the office:
Challenges focusing: Employees under great financial strain may have difficulty focusing at work. They also may be taking some time away during the day to address their financial issues. One worker in four reports that their personal financial situation has distracted them at work. Out of workers who report they are concerned about their finances, 39 percent of them say they spend at least three hours every week dealing with financial problems or thinking about them while on the job.
And 61 percent of HR professionals surveyed report that they believe that employee financial stresses were having a negative effect on their performance.
Presenteeism: Employees who are struggling with finances at home may not be able to afford to take unpaid sick days – even when they aren’t fully healthy. This could lead in lost productivity for the sick employee, as well as significant costs reduced productivity and attendance if the employees’ sickness is contagious.
Depression and anxiety. As anyone who has struggled to live pay check to pay check knows, financial hardship can lead to severe depression and anxiety. A recent study published in Health Affairs looked at 92,000 employees over a three-year period. The study found that employees who reported they were under significant amounts of stress were, on average, $413 per year more expensive than their less-stressed peers.
Employee Theft. Employees facing tremendous financial pressure at home are more likely to engage in employee theft or embezzlement. Problems may start small – employees “borrowing” from the till or cash office to get them through a tough week – and they quickly find themselves in over their heads, owing more than they can pay back.
Retention. Most employees who are under significant financial strain are basically good and don’t want to steal from anybody. But cash compensation becomes critically important to them. Which makes it very easy for other employers to hire your top talent away from you. If you can’t afford the same pay package as your competitor, an employee who is under significant financial strain, no matter how loyal they may feel, and no matter how positive the other elements of your employer value proposition may be, they may simply be unable to stay with you.
All these things cost employers money.
So how can you help your employees prevent or at least mitigate the financial stress, while protecting your interests as an employer?
- Introduce an employee wellness program or EAP. These are services that provide employees counseling, or referrals to counseling, for any number of personal issues, including financial stress. The employee pays a small monthly fee to the benefits company, and in turn any employee can call a toll-free number to get the help they need. This may include referrals to local counseling organizations, charities, mental health professionals, bankruptcy attorneys, marital counselors and other professionals as appropriate.Tell your employees that calls to an EAP are totally confidential. The EAP vendor will never share employee personal information with the employer. So they should feel free to use the service in full confidence that their privacy will be respected, and anything they may say to the EAP representatives or anyone the EAP refers them to will not affect them at work in any way.
- Make financial education available to employees. Many people are desperate for help and guidance when it comes to making financial decisions. Employers can bring in financial counselors, or make discounted or free services available as an employee benefit.
- Offer financial wellness benefits. More and more employers are offering benefits that help employees improve their financial situation.
By helping your employees pay down their student loan debt, you are helping them in a way other benefits can’t.
Making direct contributions to their student loans can help your employees get out of debt up to 25 percent faster.
Contributions of as little as $100 a month can take two and a half years off a ten-year loan.
You can design your SLP Plan to meet the unique needs of your company.
As part of your program design, you can determine the contribution amount, frequency, and employee eligibility.
You can easily set-up and manage your program while having a big impact on your employees’ lives.
The ASA’s full study is available here.