Many Employees Would Choose Student Loan Assistance Over 401(k)

It is feasible, budget-wise, for participants to participate both in a student loan repayment assistance program and a defined contribution (DC) plan, says Balaji “Raj” Rajan, CEO of IonTuition.

As the stress of looming student debt grows, more employees are looking to work for companies that offer to pay down their student loans, according to a survey by student loan management assistance provider IonTuition.

The survey found 80% of respondents would like to work for a company that offers student loan repayment benefits compared to 70% who said so in a 2015 survey.

More than half of those with student debt would prefer monthly contributions towards their loan debt rather than health care benefits, and nearly 48% would choose student loan assistance over a 401(k). Of the nearly 50% of respondents who reported having a 401(k), nearly one-quarter said they would prefer student loan assistance over their 401(k) plan.

CEO of YouDecide Peter Marcia, based in Richmond, Virginia, foresees an increase in student loan programs being ever-more present and offered by employers as more and more young talent is being hired. Repayment programs are going to be utilized as a powerful incentive for the recruitment and retention of young employees within companies, especially as graduation has just recently occurred and many Millennials are looking for financial assistant to pay off student debt, he says.

Asked if employees should focus on paying down debt first before saving in a retirement plan, Balaji “Raj” Rajan, CEO of IonTuition in the greater Chicago area, says, “Debt is expensive and hurts the ability to save. The question is that of balance, the type of career and earning prospects, and lifestyle. For those who have a high earning prospect as they grow older, paying down debt is best. For those who believe they are going to be on a fixed, stable income as they grow older, balance is needed. Retirement is important, but most people don’t think about retirement savings till they are closer to 40. And a large percentage of our population today carries student loan debt well into their forties.” 

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The standard repayment plan for federal student loans puts borrowers on a 10-year track to pay off their debt. However, more than 30% of survey respondents estimate it will take between 11 to 30 years to pay off their student loans.

Still, Rajan says it is feasible budget-wise for participants to participate both in a student loan repayment assistance program and a defined contribution (DC) plan. “This is the balanced approach we speak about. Paying down debt faster relieves a financial and emotional burden while improving credit. Contributing to a retirement plan offers predictable, tax-advantaged returns with impressive long-term value. Having access to both programs lets an employee plan for their future and deal with immediate needs at the same time,” he states.

Managing to both pay off student loans and save for retirement is a tough predicament, especially if the student loan debt is in excess of $40,000 and the young graduate has a good job, but not much in terms of liquid cash after tax, Rajan adds. “Using employer programs, smart savings, and so on are generally the best options. The access to this type of planning is not available because most financial literacy is delivered for a broad group of people,” he says. “Successfully customizing the student debt repayment using options such as directing excess monthly payments towards principal; refinancing for lower rates if the student qualifies; taking advantage of employer-provided payment assistance; are options. This requires expertise and focus that IonTuition delivers. For example, for the price of one diet coke daily, a person can pay off their loans over 2 years earlier and save a ton of money!”

IonTuition surveyed 1,000 student loan borrowers for the research. The full research report may be downloaded from here. A free registration is required.