Student loan debt: should employers focus on prevention or the cure?
In fact, education financing can have an even longer-term impact when you consider that it prevents employees from adequately saving for retirement.
Just how big is the impact of student debt on retirement savings? Consider this:
- The average debt for a 2016 college graduate with student loans is over $37,000.¹
- Almost half of Millennial households (ages 25-35) are burdened by student debt and, among those households with debt, the outstanding loan balance amounts to more than one-third of earnings.²
- Older workers struggle with student loan debt, too. In fact, the number of people age 60 and older with student loans quadrupled from between 2005 and 2015.³
This economic reality offers employers an opportunity to focus on the “people” objectives of acquisition, retention, and development of talent. And in fact, many of them are doing just that. At the 2018 Voya Retirement Summit, education financing and student loan repayment solutions was a hot topic among employers, sharing solutions that focus on both prevention and the cure.
Preventative solutions to avoid student loan debt
Preventative solutions are all about helping employees save proactively for education expenses to avoid debt in the future:
- Payroll deductions into 529 plans – According to SavingforCollege.com's 2016 Annual College Savings Survey, only 28 percent of families who wanted to open a 529 plan said they understood the steps involved. Employers can help remove that barrier by providing a benefit that makes it easier to save.
- Education reimbursement programs are a win-win as they help employees avoid debt and encourage higher level education, while adding more employees who are easily promotable, saving employers money on recruiting new talent.
Let’s take a look at the impact that education benefit offerings had on one large healthcare company in the northeast, with approximately 50K employees. Knowing how important it is to connect the financial needs for education to its effects on retirement planning, they rolled out a comprehensive College Saving, College Planning and Guidance program that includes student loan refinancing. On the employer side, the fact that 81% of the target employee group had fewer than five years on the job meant that it could be an important tool to help promote employee retention. Since its launch, participation for employees age 20-29 has increased by 381%.⁴
Solutions focused on the cure
- Debt consolidation solutions help lower the employee’s interest rate and/or monthly payment, or payroll deductions with matching contributions to help automate and accelerate student loan payoff.
- Student loan debt repayment assistance is a benefit that is gaining in popularity, however, only about 5% of employers in the U.S. offer some form of student loan repayment help to employees.⁵
A national law firm in which employees have high earnings (180k avg. for a new associate), but also high law school bills. They decided to partner with a web-based student loan refinancing company, and have since helped employees refinance $13 million worth of student debt. They also introduced a student loan repayment program for first-year associates as part of their Financial Wellness program. Just by enrolling, an extra $100 per month is paid towards employees’ student loans for a 12 month period.
The best of both worlds
Ultimately, ongoing financial wellness education – including financial advisors, on-site seminars, online tools and resources – is the only solution that focuses on both prevention and the cure. Comprehensive financial wellness programs are trending. In a survey by employer research firm Willis Towers Watson, more than two-thirds of employers (69%) agreed that they should take an active role in encouraging their employees to manage their personal finances better, and 56% said they plan to implement financial well-being programs within the next three years.⁶
As an example, Voya’s Financial Wellness online experience offers your employees a comprehensive understanding of where they are financially and what they can do to get to where they want to be. Through a focus on six key pillars – including managing debt against other financial priorities – the experience provides a personalized summary of areas for improvement, with best next steps to take meaningful action for a stronger sense of control and well-being.
To learn more about how Voya can support you and your employees with education around student loan debt, reach out to your Voya Relationship Manager.
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¹ Cedar Education Lending, Student Loan Debt Statistics for 2016, July 2016 http://cedaredlending.com/student-loan-debt-statistics
² Center for Retirement Research at Boston College, Will Millennials be ready for Retirement? January 2018 http://crr.bc.edu/wp-content/uploads/2018/01/IB_18-2.pdf
³ Consumer Financial Protection Bureau, Snapshot of older consumers and student loan debt, January 2017 https://files.consumerfinance.gov/f/documents/201701_cfpb_OA-Student-Loan-Snapshot.pdf
⁴ Results as reported to Voya by Employer X, based on 2017 participation rates
⁵ The Society for Human Resource Management, 2017 Employee Benefits survey report https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/student-loan-assistance-benefit.aspx
⁶ Willis Towers Watson, 2017/2018 Global Benefits Attitudes Survey https://www.willistowerswatson.com/en-US/insights/2017/11/2017-global-benefits-attitudes-survey