Plan sponsors are designing employee benefit packages with tools to help workers navigate student debt to attract and retain employees, says Kathleen Barber, vice president, corporate benefits and compensation, Goldman Sachs Ayco Personal Financial Management.
Student loan debt repayment benefits have been a bigger concern for companies for several years, and now are coming to the forefront because of rising inflation, she explains. Plan sponsors are giving greater focus to repayment assistance programs so employees can reduce their student loan debt and focus on financial goals, including accumulating sufficient retirement savings. “Companies have really started to look at their populations to better understand their needs and just how far in the organization those needs exist,” Barber says. “Employees are really struggling with finances across the board.”
Mounting levels of student debt, especially among younger workers, can force workers to delay preparing for retirement and result in a workforce that is worse off financially. High levels of debt can also lead to elevated financial stress at work and lower productivity of employees.
“One of the one of the things that employers can do to alleviate that concern is look for opportunities to offer employees the option to redirect existing benefits toward student debt,” Barber says. However, she says, companies have largely not started to provide benefits that actually apply payments toward debt at this point.
About 30% of the companies she works with offer some form of student loan assistance benefit, with 85% offering a refinancing option or debt management tool. Some companies are hesitant to offer direct payments toward student loan debt because they want to ensure “they’re providing benefits that meet the needs of all employees,” Barber explains.
“There have been concerns about providing benefits that only apply to certain employees in their population, even though we know a lot of people who come out of college now really struggle with managing down that debt,” she says.
Instead of creating a separate fixed contribution toward student debt, companies will allow employees to use unspent vacation time and redirect it toward student loan payments, Barber says. “Those companies have worked with administrators such as SoFi, for example, and provide an enrollment window, where employees can elect to redirect their PTO [paid time off] during a specific enrollment window each year,” she says.
Companies that are considering offering fixed monthly payments toward student loan debt are working with administrators that can practically administer that type of arrangement, Barber adds. Employers are considering the option to make company matching contributions, as with matches on deferrals to defined contribution retirement plans, based upon employees’ student loans amounts. “If an employee were to prove that he put that amount toward student debt payments, [the employer] would make the match in the plan,” she says.
Legislation that allows plan sponsors to modify their educational assistance programs to allow for student debt repayments was contained in the Coronavirus Aid, Relief, and Economic Security Act, Barber adds. “We’ve been reminding them about that piece of legislation,” she says. “[Lawmakers] extended this provision for an additional five years through the end of 2025.”
She says the legislation offers an opportunity for employers to make a contribution that’s tax-free to employees currently. “We’ve been talking with a number of companies about this. It’s easier if they already have an existing educational assistance program that they can modify but certainly there’s the opportunity to add that type of benefit,” she says.