Student loan assistance programs have become the hot new employee benefit perk as competition for talent increases and employers hunt for new ways to cater to Generation Z and millennial workers.
With the cost of college having increased dramatically in the last two decades, the outstanding student loan debt in the country ballooned to $1.5 trillion as of June 2018. The average student debt was $38,390 at that time and 2% of borrowers owed more than $100,000, according to the Institute for College Access and Success.
Additionally, among the Class of 2018, 69% of college students took out student loans, and they graduated with an average debt of $29,800.
Additionally, studies have found that all this debt adds stress to workers. A survey by global consulting firm Oliver Wyman discovered that:
- 80% of working professionals with student debt consider it a source of significant or very significant stress.
- 90% of those surveyed said that having a student loan repayment benefit would positively impact their decision to accept a job offer.
- 45% of respondents said that assistance with student loan repayment was the single-most compelling employee benefit.
With so many young workers saddled with large student debts, it’s no wonder employers now rank student loan assistance as the top new benefit they plan to offer during open enrollment this year, according to a new survey by Employee Benefit Adviser.
Even a small amount of $100 or $200 a month would go a long way to helping the worker deal with their student loan debt. The Oliver Wyman study estimates that a student loan repayment of just $100 a month would reduce time to pay off a $26,500 loan by more than three years, and save the employee $10,000 in principal and interest.
Currently, 8% of employers offer student loan repayment contributions as a benefit, but the Oliver Wyman study predicts that numbers will rise significantly during the upcoming open enrollment.
Annual employer contributions generally range from $1,200 to $6,000 per year.
Here’s how the benefit works:
- Employers that offer the benefit make direct contributions to their eligible employees’ student loan servicers to help pay down outstanding student debt.
- They will often require that the employee stays with the company for at least six months before the benefit starts.
- While annual contributions are typically fixed, some employers have designed their plans to ramp up contributions the longer a worker stays with the company. This increases the value of the benefit over time and creates a financial incentive for employees to stay with the firm.
Considerations for employers
The costs of offering this need to be closely monitored. If you have a large number of employees carrying student debt, you have to do the numbers to see how many there are and what you would be looking at in terms of outlay. The number can add up fast if many employees take advantage of the benefit.
The biggest decision at that point would be whether you plan to offer the benefit to all employees or only certain categories. Tread carefully, as you don’t want to be giving the impression of preferential treatment – or worse, discrimination.
One approach would be to only offer it to management-level employees, as some companies do.
You should also set qualification criteria, like the employee must have earned an undergraduate or graduate degree within three years of applying for the program.
Importantly, you also need to decide how long an employee must work for you before they can apply for the benefit.