It should not be surprising to most plan sponsors that many Americans, including their own company’s employees, are dealing with student loan debt. However, what may be surprising is who those people are, and the toll that it takes on their ability to be productive at work. To talk about student loan debt and what plan sponsors should be considering around the issue, PLANSPONSOR spoke with Fidelity executives Jeanne Thompson, senior vice president of Workplace Thought Leadership; Akhil Nigam, a managing director with Fidelity Labs; and Sangeeta Moorjani, head of the firm’s workplace product, marketing and advice business.
PLANSPONSOR: What exactly are we talking about when we discuss student loan debt?
Nigam: Student loans have become a major problem for our economy. Right now, about 44 million Americans1 carry student loan debt and collectively owe more than about $1.4 trillion2. That makes it the second largest consumer debt category, behind only home mortgages. And the number of people attending college keeps increasing. By 2020, it’s estimated that over 60% of jobs will require more than a high school education. So the number of people taking on student debt is expected to double by 20253.
For example, 70% of the 2016 college graduates will enter the workforce with an average student loan balance of $37,0004. These borrowers are looking for employers or benefits that can help pay student loans down faster, and employers are starting to take notice. Many recruitment efforts acknowledge the issue of student loans—and the ability to build candidate interest in open positions—and research shows that 86% of young workers5 would commit to an employer for five years if it helped pay down their student loans.
PS: Generally, when we think of student loan debt, we assume it’s Millennials, those recently out of college, but I understand that’s not the case.
Thompson: That’s right. You hear about it being a Millennial issue, but Fidelity did a survey last year of more than 9,000 401(k) and 403(b) participants of plans recordkept at Fidelity, and we found that over a third, overall, have student loans. Many people take them for a loved one, such as parents to help their kids. Sixty-three percent of Millennials have student debt, but 36% of Generation Xers have it, and one in four Baby Boomers do. So it’s more widespread than people realize.
PS: So if it’s a widespread problem, what long-term issues may grow out of it if we don’t address it at a societal—or maybe a workplace—level? Besides the fact that it’s growing, what other challenges or issues do we face?
Thompson: A few challenges we see involve how people save and spend. For example, younger Millennials are putting off getting married; they may be delaying having kids or even buying a first home. The issue for Gen Xers is they are still paying down their own loans while balancing the need to save for their kids college education and for their own retirement. And with Boomers, they find themselves taking out their own student loans or tapping into their 401(k) to put their kids through school and delaying retirement. All three groups are taxed both emotionally and financially. We found that, in general, when people take on debt it raises their stress level; they don’t sleep as well or eat as well. We studied how certain life events affect people, and taking on debt was one of the most negative events. It affects almost every part of people’s lives: their money, their health, work and their overall happiness.
PS: So, if we step beyond to our PLANSPONSOR audience, obviously this is affecting their employees. But why should retirement plan sponsors and employers care about their employees’ student loan debt? What are the implications for the employer and the workplace?
Moorjani: When we think about financial wellness, clearly student debt contributes to it. We found that when people can’t manage month-to-month expenses—which may include student loan payments—they’re not saving. They prioritize paying down that debt over saving for retirement and healthcare. In fact, 79% of Fidelity participants we interviewed said student debt keeps them from saving for retirement.
One of the real reasons employers are taking notice is because of the impact student loan debt has on recruitment, retention and overall employee productivity. And in the war for talent, solutions to address student debt and reduce costs around employee turnover can give employers a competitive advantage.
PS: What are the ramifications, not just for retirement, but for employees’ life overall and for workplace health?
Moorjani: From a broad perspective, if workers are not financially well, it hurts their performance. Stress affects their productivity on the job—another reason more employers are looking at this, to help their employees be ready and fully engaged in the job they’re doing right now.
PS: How do plan sponsors and employers integrate student loan debt into this idea of a broader financial wellness program?
Moorjani: First is the student debt program itself, which needs to include a broad range of education and resources. The second helps the employee apply the first: People want to understand, “What impact does what I just read have on my everyday life?” So we provide quick and easy calculators and tools to help people assess where they are, and the education helps them be better prepared and take advantage of solutions.
PS: So, what do you at Fidelity say when you discuss this with employers?
Nigam: What we’re really excited about is bringing a holistic solution into the market for our clients. This solution has three major components. The first is a student debt employer contribution. Fidelity was one of the first to offer a student debt employer contribution, to its own employees—we pay $2,000 a year toward their student loans, with a lifetime cap of $10,000. Since then, employers have been asking, “Can you help us do that for our workforce to help employees pay down their debt and help with our recruitment and retention efforts?”
This piece is really a recordkeeping solution—one that’s unique in the market, because it’s integrated with the rest of the systems we offer our employers or clients. It’s integrated within NetBenefits® so the employee can track and view payments online alongside all their other benefits. Employers have access through the Fidelity Plan Sponsor WebStation [PSW] and, depending on the plan design, can track all of the payments they’ve made on behalf of their employees right within PSW itself.
We’re piloting this solution now for a few employers and making it available to the broader marketplace starting in 2018.
The second piece is the student debt tool. It’s a new kind of planning and guidance experience we hope will empower people to get control of their student loans. A key problem in this market is that people just don’t understand their complete student loan picture; they don’t understand how much they are paying or what their interest rate is. The student debt tool helps people understand their student loan portfolio and guides them toward potentially the right repayment options for them.
The third is a preventative piece, which we call pre-college planning. The goal is to help families avoid taking on an insurmountable amount of debt in the first place. It’s a proactive solution, to make people smarter about the real cost of college. One dimension is getting people to save the right amount, to save early, and save often. The second is encouraging high school students and their families to have that financial conversation, to make sure a college is not just an academic fit but also a financial fit.
PS: How do you get participants engaged with the student debt program?
Nigam: Both the pre-college planning piece and student debt tool are available through our financial wellness program. For the student debt employer contribution piece, if a plan sponsor decides to offer it, it’s accompanied by a simple and personalized communications program to drive employee awareness, enrollment, and ongoing engagement.
PS: To sum up, what do you think are the most important points for plan sponsors to take away?
Nigam: Understanding that student loan debt is a huge issue in our economy as well as in our nation, that it is affecting a majority of college graduates, and employers are taking notice and asking for help because it impacts their ability to meet workforce management goals. You also need to approach the issue with a holistic solution to ensure you address the broad needs of all employees.
Thompson: I’d say, when people hear about student debt, they immedi-ately think Millennials, but it’s so much broader than that. So one of the things we’re trying to do is raise awareness among the employers that it’s not just a Millennial issue.
Moorjani: And because the cost of college only continues to increase, pre-college planning is critical to help ensure families are prepared to make the best decision possible for their specific situation, so they’re not surprised by how it impacts their financial wellness later.
1 Federal Reserve Bank of NY.
2 MarketWatch, 2016. www.marketwatch.com/story/every-second-americans-get-buried-under-another-3055-in-student-loan-debt-2015-06-10
3 Georgetown Center on Education and Workforce
4 The Wall Street Journal; “Student Debt Is About to Set Another Record, But the Picture Isn’t All Bad,” May 2016.
5 American Student Assistance Young Workers and Student Debt Survey by Regina Corso Consulting. N=502 young workers between the ages of 22 and 33, January 2017.