May 17, 2018
Congratulations Class of 2018! You have done it! Now you’re looking forward to the next chapter: beginning your career.
It’s an exciting time, but in the background lurks something else – nearly $40k in student loans. At the end of 2017, 44 million Americans carried $1.48 trillion in student loan debt. In fact, about four-in-ten people under 30 have student loan debt. Headlines scream that this is an issue to be reckoned with; individuals unable to purchase homes due to high debt to income ratios, defaults, less income to save for the future in the form of 401k contributions, etc. Also, there should be no misconception that this only impacts millennials – it affects all generations especially when you consider parent PLUS loans, where parents are assuming the responsibility and/or are co-signers for loans.
A focus on financial well-being is a growing trend in the workplace, as employers recognize that contributing to their employees’ overall financial well-being can help to decrease workplace distraction. Up until very recently, financial wellness was confined to retirement plans. Prior to the Revenue Act of 1978, which established qualified deferred compensation plans – our modern day 401(k) plans — retirement plans were funded strictly by the employer and employees knew to expect a certain retirement benefit based on a formula related to age, service and earnings. Employees did not need to worry about how assets were invested (although employers did have to disclose that) because it was employer money. When traditional pension plans began to sunset and were replaced by 401(k) plans largely funded by employee money, employers had a fiduciary obligation to explain how investments worked and that it is the responsibility of the employee to determine how risk adverse he/she is when determining how to allocate his/her contributions.
With student loan debt accelerating, a new iteration of financial wellness is buzzing through corporate America; student debt is now tracking high on employers’ radar. Employers are becoming increasingly aware that in order to attract and retain talent, they must consider strategies to assist their employees in mitigating this growing burden.
Create awareness: Employers can create awareness about the existence of student loan solutions. Financial wellness programs should be addressing student loan debt, offering employees help with understanding how to manage the debt, as well as informing them about loan assistance programs. Student loan solution firms offer these services, some for a nominal fee, some at no cost. When employers vet these organizations for their employees, they should ensure that the firm is aware and can communicate the implications of refinancing a public loan because refinancing a federal loan is not always the best outcome. Accurate and clear educational materials are key.
Refinancing options: Even though refinancing is not for everyone, well-vetted student loan refinancing partners should be considered as part of a comprehensive student loan debt solution strategy. Understanding the approval rate is important as well as whether there are any other incentives such as a welcome bonus that may be applied to the loan principle.
Direct financial assistance: There are multiple ways to structure programs to provide financial support to paying off employee student loans. Creativity abounds when designing these plans because they can focus on what is important to the employer. Just by offering this benefit, employers can attract key employees. If retention is key, the employer can structure the plan so that for the first year the monthly allocation could be $50 to $100 per month and then each year thereafter, increase the contributions. Companies can replace hiring bonuses with this benefit if they would like. All parties need to be aware that as of this writing, there are no tax advantages to this arrangement; employer contributions are taxable to the employee.
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