What's New in Workplace Benefits? Student Loan Repayment Plans

It's no secret that the competition for talent has never been more fierce than it is at this very moment. With a 3.7 percent national unemployment rate, it's definitely a candidate's market when it comes to jobs. Do you remember the days when people were beating at your door for one of your coveted jobs? I do... vaguely. It's a different ballgame these days, and companies are required more than ever to sell themselves to candidates.

Another factor that is driving the competitive job market is the mass retirement of Baby Boomers. Forbes recently reported that 10,000 Boomers turn 65 every day. While it's true that many employees are delaying retirement for one reason or another (finances usually being at the top of the list), that means that anywhere from 3-4 million people will exit the work force in a given year. And many companies are looking to college graduates to fill these vacant spots.

One thing we know is that average salaries for college graduates is up over previous years to $49,785 (Korn Ferry). That's good news, right? Yes and no. There's a catch. With rising cost of education, college graduates are coming out of school well in debt. Recent data from Oliver Wyman shows that the average Bachelor’s degree graduates owe $26,500, and Masters graduates owe between $45,000 and $60,000. And that's just an average, some students are carrying much more debt than that. So when we start breaking down their monthly income vs. expenses, a $50,000 salary doesn't take you very far. After a house or apartment, car, groceries, health insurance, utilities, and all the other necessities, they are barely scraping enough to go out for drinks with their friends after a long week, let alone put money away for retirement.

This is where Gradifi comes in. They offer student loan repayment plans (SLP's), which give employers the opportunity to make contributions directly toward their employees' outstanding student loans. While only about 4% of employers have one in place (Society for Human Resource Management), they are already wildly popular in concept.

Oliver Wyman conducted a consumer survey of over 3,000 households with some form of college degree, and about 1/3 of the respondents had some outstanding student loan. 58% of respondents who had an outstanding student loan at the time of the survey responded that they would prefer their employer to make additional payments on their student loan instead of making contributions towards their retirement fund. And 45% said that a SLP is the single most compelling benefit their employer could offer -- even exceeding health insurance!

How do SLP's work?

To set up the plan, the employer simply determines how much they want to contribute per month to their employees' loans. And like any good employer-sponsored benefit plan, there is zero intervention needed by the employee once they enroll. The employer makes the payment each month through through the Gradifi platform, and the money goes directly into the employee’s student loan account. Simple. The money never touches the employee's hands, and the payment is made quickly to the loan servicer.

Currently, SLP's are considered taxable income to the employee. However, there are bills introduced in both the House and Senate that would change this rule, and would carve loan repayments out of the employee's gross income. Recently, the IRS gave their blessing for Abbott Laboratories to allow their employees to defer a percentage of their income towards student loan repayment, and also receive the employer match from Abbott into the employee's 401k. The decision seems to indicate that the IRS recognizes the economic benefits not just to employees, but to the economy in general, in employers contributing to employees' student loans.

So let's take a look at what the actual impact is to your employee who takes advantage of this benefit. We'll call him Tom.

Tom has a student loan of $26,500 when he graduates college. He's probably paying about 4% interest over the 10-year term of the loan.

Tom begins working for a firm with a SLP.

His employer contributing just $100 a month to Tom's student loan will cut his 10-year repayment down to 7!

I think it's safe to say that SLP's will continue to gain traction as an employer benefit or choice. Growing employer concerns over replacing their retiring workforce, and the increasingly competitive nature of the job market, will require that employers innovate to survive. SLP's are an ideal strategic tool to address these issues.