You’re probably pretty busy dealing with the impact of the coronavirus on your organization. But once we return to normal, you’ll be back to dealing with your core issues, like recruiting and retention.
Recruiting and retention are a very big deal for many employers: Before the coronavirus, lots of HR directors I know saw this as their biggest challenge. That’s especially true for employers in skill-intensive industries like tech, engineering, law, architecture, and pharmaceuticals.
Here’s some good news: If you’re smart, you can utilize a student loan repayment program to help you recruit, and hang onto, good employees. Ninety percent of young employees say they’d commit to a job for five years in return for help with student loans, according to a MassMutual/Tuition.io paper, “Benefits strategies for the modern workforce.” This program also can help your employees reduce their financial stress and save more, so they can retire on time.
Yes, the federal government has given Americans temporary student loan relief. But that will go away, and we will be right back to where we were: millions of Americans facing crushing student debt. Outstanding student debt totaled $1.51 trillion in the fourth quarter of 2019, up $51 billion from fourth-quarter 2018, according to the Federal Reserve Bank of New York. And 70% of student debt holders say they’re held back from saving for retirement due to student loans, according to a paper from student loan repayment provider SoFi, “The Impact of Student Loan Benefits.”
Two Main Approaches
There are a couple of main ways to design a student loan repayment program. One integrates the program with an employer’s retirement plan, an approach pioneered by Abbott. The global health-care company designed its program to directly address the dilemma of employees not contributing to their 401(k) because they need to direct that money to their student loan repayments instead. Its Freedom 2 Save program enables Abbott employees who can show that they're using at least 2% of their eligible pay to put toward repaying their student loans to get a 5% employer contribution to their 401(k) account in return, according to an Abbott news release.
Abbott got an Internal Revenue Service private-letter ruling for its program. I don’t see many employers in a position to pursue their own private-letter ruling, because of the time and expense involved. Some employers may feel comfortable going without their own private-letter ruling, and implementing a program closely matching Abbott’s. However, I haven’t met a single employer willing to do that.
But why force yourself to be limited by the parameters of a private-letter ruling? You can shape the program how you want, if it’s wholly unrelated to your retirement plan. The great thing about doing a stand-alone program is that it’s not subject to ERISA requirements, so you can really customize it to suit the needs of your employees and organization.
With a stand-alone approach, you can decide exactly which group of employees you want to offer the program to, down to the job title, and make a contribution directly toward their student loan repayment. A pharmaceutical company could offer the program to its scientific staff, since many likely carry heavy student debt because they got a PhD, but not to its sales staff. You can design your contribution approach strategically, to meet your workforce needs.
Two Challenges, Two Solutions
I have heard some employers’ concern that launching a student loan repayment program could prompt a backlash from employees who don’t have student debt, and think those who do are getting special treatment. Fortunately, you can set up your program to deal with equity concerns. Your program could include an employer contribution not only to employees paying down debt for their own higher education, but also employees still repaying loans from their adult child’s college education—and now, you’re giving Baby Boomers a valuable benefit. Your program also could include contributions toward an employee’s 529 savings program for their children’s future college education—and now, you’re giving Generation X a perk it’ll appreciate.
You also may feel wary about taking on the expense of a new program like this. But you have the flexibility to make it workable. You could do a graduated contribution scale: For example, for employees in their first year in the program, you’d contribute $25 a month to their student debt repayment, then $50 monthly for the second year, and $100 monthly for the third year and beyond (perhaps up to a pre-set maximum).
And think about it this way: If you have recruiting or retention challenges, this program can make a real difference. Employers see up to a 20% reduction in turnover after their program’s first year, the MassMutual/Tuition.io paper reports. That reduces recruiting and training costs, and the lost productivity from an unfilled job. What is that 20% savings worth to you?