At a virtual 2020 PLANSPONSOR National Conference panel, Barbara Rayll, vice president, product and solutions management, AIG Retirement Services, said many of AIG’s clients are public sector entities. “My team has responsibility for financial wellness, of which student debt is a piece,” Rayll said on the third day of the conference. “We recently launched the Public Service Loan Forgiveness [PSLF] program, which guides participants through the process of applying for student debt loan forgiveness and helps them complete the paperwork.”
Kelly Mutuc, vice president, talent management, Novaspect Inc., said that as a company that is 100% owned through an employee stock ownership plan (ESOP), Novaspect wants to show its employees it cares about them. Mutuc said the human resources (HR) team heard from a number of employees that they were carrying an onerous amount of student loan debt, so the company decided to launch a student debt program whereby it directly pays $100 of each employee’s student loan debt each month.
To get management’s buy-in on this program, the HR team noted that the company was grappling with a 15% turnover of employees each year.
“We heard a lot about how student debt was preventing them from saving for their future,” Mutuc said, “and we know there are not a lot of options for them to get out from under it. Hopefully, we are going to take months, possibly years, off of the life of the debt, and enable them to begin contributing to their 401(k) at an early age.”
Asha Srikantiah, vice president and head of the Fidelity Student Debt Program and workplace emerging products at Fidelity Investments, said student debt programs “not only help your employees, but they help sponsors attract talent and increase retention.”
She added that student loan debt is an incredibly important challenge that sponsors are in a position to help their workers overcome. “The game has changed dramatically in the past decade,” Srikantiah said. “Student loan debt is now outsized compared to previous generations due to a couple of factors. The cost of tuition has doubled in the past 15 years. Student loan debt now outpaces other forms of consumer debt that one would think would follow mortgages, which continue to be Americans’ biggest debt. Today, student loans are their second-biggest category of debt—outpacing credit card debt and auto loans.”
Srikantiah said that while many people might think student loan debt only plagues Millennials and Generation Z, “it is a completely multigenerational problem. In fact, the [Baby] Boomer population has their loan balances increasing at a faster pace because parents are taking out student debt in their own name to fund children’s education.”
Fidelity research has found that Boomers’ average student loan debt balance is $55,000. It is the same for Gen X and only slightly less, $45,000, for Millennials.
“One of the reasons many employers are looking at this space is to figure out how they can get involved,” Srikantiah said.
Those working in the public sector in higher education often have master’s degrees and lower salaries than those in the private sector, which is only compounding the problem, Rayll said. “People think they will be able to pay off their debt in their early 30s, but, typically, it is not until their 40s, or potentially 50s, and then they are taking on additional student debt for their kids, so it becomes cyclical,” Rayll said.
“MIT [Massachusetts Institute of Technology] research has found that 80% of people say this debt is negatively impacting their ability to save for retirement, and 73% plan on paying off their student debt before saving for retirement,” Rayll said.
Srikantiah added, “Beginning to save in the early employment period is so important to capture compounding [interest]. When you start later, you are so much further behind to become truly retirement ready.”
One solution is to “create a plan design that enables employees to focus on their student debt while employers help them with saving for retirement and link those things,” she said.
Besides offering 529 college savings plans, Fidelity also helps its clients with college selection, “to find a college that works academically and with extracurriculars for the student, as well as from a financial perspective,” Srikantiah said.
For those who have debt, Fidelity offers “free education tools to help sponsors’ employees know how much debt they owe, where the debt is located, how much interest they will accrue and the various repayment options available, all free of charge,” Srikantiah said.
Fidelity’s Student Debt Employer Contribution Program enables employers to make direct payments to workers’ student loan debt, she said. With Benefits Choice, employees can trade the use of other benefits—perhaps unused paid time off (PTO) or wellness dollars—to be directed to their student loan debt, and the employer makes an annual payment to that cause, she said.
She noted that most student loan debt programs are only about 4 years old and predicted that more solutions will be created in the coming years. “We will continue to see new plan designs pushing the boundaries of what exists today to help solve this problem,” Srikantiah said.
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