More employers may offer this money-saving perk
Aid toward student loans helps staff tackle debts
DETROIT – Jamie Cummings, 41, faces $93,000 in student loans, the kind of college debt that could keep anyone awake at night.
“It’s so overwhelming, knowing that my last payment will be when I’m 65 years old,” said Cummings, a customer service manager for a Carhartt store in Dearborn, Michigan.
She’s paying $450 a month – roughly a car payment – just to deal with her student loan debt from her undergraduate and master’s degrees from Eastern Michigan University. She borrowed to study to be a teacher. Thanks to the interest that keeps building on her loans, the amount she owes has grown since she obtained her master’s degree in communications in 2008.
“I had to pay for my books, my housing. My parents were not in any position to assist,” Cummings said.
So she was absolutely thrilled when her company, Carhartt, started telling workers in May that it had their back when it came to paying off college debt.
Carhartt will pay $50 a month up to
$10,000 to help its eligible part-time and full-time workers worry a little less about their student loan debt. Employees have to be with the company at least
30 days, if non-union, or 90 days, if in a job represented by a union.
❚ Trendy new worker perk: As companies try to hire millennials in a tight labor market, they’re adding a new perk for workers who are juggling student loan payments. Industry experts say more companies are likely to roll out student loan-related benefits in 2019.
“A lot of employers are trying to make sure they are competitive as a place to work,” said Asha Srikantiah, vice president of emerging workplace products for Fidelity’s Student Debt Program.
Fidelity Investments offers eligible employees with more than six months of tenure $2,000 a year toward their student loans, up to $10,000 total.
Fidelity is also working with about 40 other employers to offer student loanrelated benefits, including Hewlett Packard Enterprise, the Options Clearing Corp., Ariel Corp., New York Air Brake and Millennium Trust.
In 2015-16, the most recent data available, 10.5 percent of bachelor’s degree recipients graduated with $50,000 or more in college debt, said Mark Kantrowitz, publisher and vice president of research for Savingforcollege.com. About 0.5 percent graduated with
$100,000 or more in student loans. That’s counting both federal and private student loans but excluding Federal Parent PLUS Loans.
❚ Potential to reduce turnover:
Companies – which may have high turnover in their workforce – want to engineer a way to offer a student-loan fix and hold onto those workers.
About 86 percent of employees say they’d stay with a company at least five years if their employer helped pay down their student loans, according to a survey by the advocacy group American Student Assistance. The survey indicated nearly 65 percent said they may seek a second job to help pay off their loans.
Industry experts say student loan debt, which totals $1.5 trillion nationwide, has a real impact on recruitment, retention, the ability to save for retire- ment and overall productivity.
In June, Illinois-based Abbott announced what it calls a “Freedom 2 Save” program that would enable workers who are contributing 2 percent of their eligible pay toward student loans to receive the company’s 5 percent match into the 401(k) plan. The global health care company said it has already signed up hundreds of employees for the student loan benefit.
“It gives millennials who aren’t saving for retirement a lot more flexibility,” said Ellen Wichman, a spokeswoman for Abbott.
Yet Wichman said the program isn’t just helping young people who are fresh out of college, as many existing workers are dealing with student loans, too.
Nationwide, about 6.8 million borrowers ages 40 to 49 owe on average
$33,765 each in student loans.
❚ Company match: 401(k) or student loan? “We’ve seen an onslaught of very innovative new plan designs,” said Scott Thompson, CEO of Tuition.io, a California-based platform for employee student-loan contributions.
One large, well-known employer is expected to launch a plan in January that would allow employees to decide if they would want a 6 percent contribution from the company to go toward their 401(k) or their student loans. The company will no longer offer matching contributions in the 401(k) for employees to contribute to the plan, Thompson said. He declined to name the company.
About 50 percent of employees at that company did not take advantage of the match anyway, he said, so the 6 percent soon will be offered whether employees contribute any money or not.
More often than not, Thompson said, younger workers are less worried about what they’ll do in retirement 30 or 40 years from now.
He said they’re saying, “Help me with what I’m struggling with today.”
❚ Potential tax changes? We’re likely to hear more about student debtrelated benefits connected to 401(k) plans in some way, as well.
In August, the IRS issued a private letter ruling on one employer’s strategy to address student debt through its
401(k) plan. Abbott is not mentioned, but many in the industry assume the letter refers to Abbott’s changes.
After that ruling, an employer organization – the ERISA Industry Committee – sent a letter to the IRS seeking to broaden that decision in the private letter to all qualified plans.
Thompson said employers are increasingly interested in tackling the student loan issue because they’re realizing that often 30 to 35 percent of their workforce must pay off student loans. Many times, employees face $40,000 or
$50,000 or more in student loans. The problem, he said, is a function of the rising cost of higher education, as well as limited starting salaries at many companies. The cost of living in many communities has skyrocketed, as well, putting pressure on what bills must be paid immediately.
Student loan debt itself often isn’t cheap, with many borrowers facing blended rates on their variety of loans at
6.5 percent or so, he said.
What many people might not realize, Thompson said, is that the savings over time can be significant. In some cases, borrowers with college loans in the
$90,000 range can save roughly $14,300 in interest and principal and cut 19 months or so off their repayment simply because an employer is paying $50 a month to the principal of their student loans, he said.